Liquidity ratios

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Last updated 12:16 AM on 8/13/26
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7 Terms

1
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Current Ratio (^)

current assets - current liabilities

-> ST debt-paying ability

2
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Acid Test Ratio (^)

(ST investments + Cash + Accounts Receivable) / Current Liabilities

-> immediate ST debt-paying ability

3
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Recievables Turnover Ratio (^)

Net Credit Sales / Average Accounts Recievable

-> to calc liquidity of AR

4
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Inventory Turnover Ratio (^)

COGS/Average Inventory

-> to calc liquidity of inventory

5
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Collection Period (⬇️)

Days in year / receivables turnover

-> Number of days receivables are outstanding

6
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Days' Sales in Inventory (⬇️)

365 days / inventory turnover

-> number of days inventory is on hand

7
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Operating Cycle (⬇️)

days sales in inventory + collection period

-> number of days to purchase inventory, sell it on account, and collect cash