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Ratio Analysis 4.3
Current Assets mean those assets which are either in the form of cash or can be converted into cash within a year or within the Cash and Bank Balances, Inventory (Stock), Trade Receivables (Debtors + Bills Receivable) Loose Tools and Spare Parts are excluded Current Liabilities are those liabilities which are payable within a year or within the Trade Payables (Creditors + Bills Payable), = Current Assets – Inventory (Stock) Long-term De
Remarks period of Operating cycle. For example— Prepaid Expenses, etc. from Current Assets for the ratio. period of Operating cycle. For example— Bank Overdraft, Outstanding Expenses, etc. Quick Assets – Prepaid Expenses + Long-term Provisions. Shareholders’ Funds = Share Capital + Reserves and Surplus Or – Non-Current Liabilities Provisions).
How Expressed Pure e.g., 2 : 1 Pure Pure
Summary of Important Accounting Ratios
This ratio shows short-term financial soundness of the business. A higher ratio means better capa city to meet its current obligation. The ideal Current Ratio is 2 : 1. In case it is very high it shows the idleness Quick Ratio is a fairly stringent measure of liquidity. It is based on those current assets which are highly liquid. Quick Ratio of 1 : 1 is considered as ideal. The higher the Quick Ratio, the better the short-term This rat
Significance of funds. financial position. protection enjoyed by the lenders.
Formula Current Assets Current Liabilities Quick Assets or Liquid Assets Current Liabilities Debt/Long-term Debt Equity (Shareholders’ Funds)
Description of the Ratio I. Liquidity Ratios Current Ratio 1. Quick/Liquid/Acid 2. Test Ratio II. Solvency Ratios Debt to Equity Ratio 1.
