Instructions: Use this calculator to find the liquidity ratio such as current ratio, quick ratio and working capital ratio analysis of a company. Please input the desire values in the form below:
Definition of liquidity in business
The liquidity ratio is an important measurement of firm performance. This is used to calculate the time required to turn their assets back into cash. The liquidity ratio signifies the firm’s capability to pay its short-term liabilities which are due in one financial year.
The main liquidity ratios are the current ratio and quick ratio.
Current ratio
Firm capability to payout its short-term liabilities includes a current portion of long-term loans, accounts payable and others.
It is calculated as current assets divided by current liabilities.
When;
Current ratio = 1; means current assets equal to current liabilities
Current ratio < 1; means current assets less than current liabilities
Current ratio > 1; means current assets greater than current liabilities
Higher the value of the current ratio means the firm has sufficient capability to timely payout its short-term financial obligations which contrast with lower current ratio.
Quick ratio
Quick ratio is also liquidity ratio which calculated as current assets less inventories divided by current liabilities. The higher in the value of quick ratio shows high firm liquidity to payout its short term liability.
The main difference between current ratio and quick ratio is that quick ratio excludes value of inventories.