Liquidity Ratio:
Liquidity ratio, expresses a company's ability to repay short-term creditors out of its total cash. The liquidity ratio is the result of dividing the total cash by short-term borrowings. It shows the number of times short-term liabilities are covered by cash. If the value is greater than 1.00, it means fully covered.
Liquidity Ratio= cash & equivalents / creditors, short
Liquidity Ratios:
Acid Test Ratio:
The acid test ratio measures the immediate amount of cash immediately available to satisfy short term debt.
Acid Test Ratio = (cash + marketable securities) / current liabilities
Cash Ratio:
The cash ratio (cash and marketable securities to current liabilities ratio) measures the immediate amount of cash available to satisfy short term debt.
Cash Ratio = cash / current liabilities
Cash Debt Coverage Ratio:
The cash debt coverage ratio shows the percent of debt that current cash flow can retire.
Cash Debt Coverage = (cash flow from operations - dividends) / total debt.
Current Ratio:
The current ratio is used to evaluate the liquidity, or ability to meet short term debts.
The generally acceptable current ratio is 2:1
Current ratio = current assets / current liabilities.
Liquidity Index Ratio:
The liquidity index indicates the number of days during which assets are removed from cash.
Liquidity Index = ((Accounts receivable x collection period) + (inventory x cycle period)) / (cash + accounts receivable + inventory).
Long Term Debt to Shareholders Equity (Gearing) Ratio:
The long term debt to shareholders equity ratio is also referred to as the gearing ratio. A high gearing ratio is unfavorable because it indicates possible difficulty in meeting long term debt obligations.
Gearing Ratio = long term debt / shareholders equity.
Quick Assets:
Quick assets are the amount of assets that can be quickly converted to cash.
Quick Assets = cash + marketable securities + accounts receivable.
Quick Ratio:
The quick ratio is used to evaluate liquidity. Higher quick ratios are needed when a company has difficulty borrowing on short term notice
A quick ratio of 1:1 is considered satisfactory unless the majority of "quick assets" are in accounts receivable and the company has a pattern of collecting accounts receivable slower than paying accounts payable.
Quick ratio = (cash + marketable securities + accounts receivable) / current liabilities.
Working Capital:
Working capital is the liquid reserve available to satisfy contingencies and uncertainties.
Working Capital = current assets - current liabilities.
Working Capital Ratio = current assets / current liabilities
Working Capital from Operations to Total Liabilities:
The working capital from operations to total liabilities ratio is included in the financial statement ratio analysis spreadsheets highlighted in the left column, which provide formulas, definitions, calculation, charts and explanations of each ratio.
Working Capital from Operations to Total Liabilities = working capital provided from operations / current liabilities
Working Capital Provided by Net Income:
A high ratio indicates that a company's liquidity position is improved because net profits result in liquid funds.
Working Capital Provided by Net Income = net income - depreciation
