Accounting

it is an analysis of liquidity of a company. a company that is liquid has surplus cash remaining even after it has fulfilled its obligations. in simple terms, a company which has cash after paying off liabilities is said to have good liquidity.

there are basically four types of liquidity ratios which companies calculate. they are:

this ratio analyzes whether a company can pay off its short-term obligations using its current assets. generally, the ideal current ratio for a company is considered to be 2.00. current ratio is calculated using the following formula:

quick ratio analyzes whether a company can pay off its short-term obligations using its most liquid assets. the ideal quick ratio for companies is 1.50. quick ratio is calculated as follows:

this ratio assesses whether a company can pay its obligations using its cash. cash ratio is calculated using the following formula:

working capital is the excess of current assets over current liabilities. if current assets are more than current liabilities, the company has surplus working capital, which is a good sign of liquidity. working capital is calculated as follows: