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Accounting Ratios 3.3

Current Investments + Inventories (Excluding Stores and Spares and Loose Tools) + Trade Receivables (Net of Provision for Doubtful Debts) + Cash and Cash Equivalents + Short-term Loans and Advances + Other Current Assets + Short-term Investments. Short-term Borrowings + Trade Payables + Other Current Liabilities + Short-term Provisions.

Remarks Quick Assets = Current Assets – Inventories – Prepaid Expenses. Note: Inventories and prepaid expenses are not considered as Debt = Long-term Borrowings, (i.e., debentures, mortgage loans, Equity (Shareholders’ Funds) = Share Capital + Reserves and Surplus. Or Non-current Assets (Property, Plant and Equipment + Intangible Assets + Non-current (Trade) Investments + Long-term Loans and Advances) + Working Capital – Non-current Li

= = Current Liabilities have same meaning as in Current Ratio. public deposits) + Long-term Provisions. Working Capital = Current Assets – Current Liabilities. Debt = Long-term Borrowings + Long-term Provisions.
Current Assets Current Liabilities Quick Assets. term Provisions).

Table Showing Summary of Accounting Ratios

How Expressed Pure Ratio Pure Ratio Pure Ratio Pure Ratio, e.g., 2 : 1

Significance I. LIQUIDITY RATIOS This ratio shows short-term financial soundness of the business. Higher ratio means better capa city to meet its current obligation. The ideal Current Ratio is 2 : 1. Liquid Ratio is a fairly stringent measure of liquidity. It is based on those current assets which are highly liquid, i.e., can be converted into Cash and Cash Equivalents quickly. Quick Ratio of 1 : 1 is considered as ideal. Higher the Quick Ratio be

the lenders.

Ratio Current Assets Current Liabilities Liquid Ratio/Acid Test Ratio/ Liquid Assets or Quick Assets Current Liabilities Debt = Equity (Shareholders’ Funds) Total Asset to Debt Ratio
Current Ratio Quick Ratio Debt to Equity Ratio Total Assets Debt

1. = 2. = 1. 2. =