RATIO ANALYSIS FM

Current ratio

Current asset / current liability

Current asset

Inventory + sundry debtor + cash & bank + receivable + loans & advance + disposable + investment + any other current assrt

Current liability

Creditors for goods and service + short term loan + bank overdraft + cash credit + outstanding expense + provision for taxation + proposed Dividend + unclaimed dividend + any other cl

Generally acceptable current ratio

2:1

Interpretation of current ratio

does your business have enough current assets to meet the payment schedule of its current debts with a margin of safety for possible losseS in current assets

Or

In other words current ratio measures whether a firm has enough resources to meet its current obligations

Quick ratio other name

Acid test ratip

Quick ratio

Quick assets / current liabilities

Quick assets

Current asset - inventories- prepaid expenses

Quick ratio interpretation

If all sales revenue disappears could my business meet its current obligations with the readily convertible quick funds on hand

Acid test generally acceptable ratio

1:1

Cash ratio or absolute ratio

[ Cash and bank balances + marketable securities ] / current liabilities

Or

[ Cash and bank balances + current investments ] / current liabilities

Cash ratio other name

Absolute liquidity ratio

Cash ratio interpretation

The absolute liquidity ratio only test short term liability in terms of cash and marketable securities/ current investments

Basic defence interval ratio

[Cash and bank balances + net receivables + marketable securities] / operating expenses