Short-term Liquidity Ratios

These flashcards cover key terms related to short-term liquidity ratios, including definitions and explanations to facilitate understanding and retention for the exam.

Current Ratio

A liquidity ratio that measures a company's ability to cover its short-term obligations with its current assets; calculated by dividing current assets by current liabilities.

Quick Ratio (Acid-Test Ratio)

A measure of a company's short-term liquidity that indicates its ability to cover its current liabilities without relying on the sale of inventory; calculated by dividing liquid assets by current liabilities.

Cash Ratio

A liquidity ratio that measures the company’s ability to pay off short-term debt obligations with cash and cash equivalents; calculated by dividing cash and cash equivalents by current liabilities.

Working Capital

A financial metric representing the difference between current assets and current liabilities; indicates the short-term financial health and operational efficiency of a company.

Liquidity Ratios

Financial metrics used to assess a company's ability to meet its short-term obligations and maintain adequate cash flow.

Current Assets

Assets that are expected to be converted into cash or used up within one year or one operating cycle, whichever is longer.

Current Liabilities

Obligations that a company is expected to settle within one year or one operating cycle.