Liquidity, solvency and ratios
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6 Terms
1
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What is liquidity?
a companys ability to pay short term debts
2
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what is solvency?
a companys ability to pay long-term debts
3
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what is the current ratio used for?
to measure a companys ability to pay off its current liabilities with its current assets
4
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what is the formula for current ratio?
current assets/current liabilities
5
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what is the acid test ratio used for?
to measure a comapny’s ability to meet its short term debt obligations with its most liquid assets
6
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what is the formula for acid test ratio?
current assets - inventory/ current liabilities
Note 
Flashcards (108)