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Liquidity ratios

Liquidity Ratios

There are two main ratios that can be used to measure the liquidity of a business:

1. The current ratio
2. The 'acidtest' ratio

The current ratio

The current ratio. This measures current assets as a proportion of current liabilities. It is calculated
using the following…

Page 2

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This means that for every £1 of current liabilities, the business has £0.83 of cash available at
shortnotice. Ideally, the answer should be between 1 and 1.2. A figure less than 1 indicates that the
business may experience difficulties in meeting its shortterm debts (i.e. a liquidity crisis). An answer…


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