Fabulous Interpretation Of Liquidity Ratio Analysis
Commercial banks and other short-term creditors are generally interested in such an analysis.
Interpretation of liquidity ratio analysis. Financial Ratio Analysis 1. Solvency check tells about the ability of the company to continue running its operations for the long term Read more. Current usually means a short time period of less than twelve months.
However managements can employ these ratios to ascertain how efficiently they utilize the. Combined analysis Combine cross-sectional and time series analysis. Ratio Analysis 8 P a g e Liquidity Ratios Continued Quick Ratio Cash AR Marketable Securities Current Liabilities A more stringent liquidity test that indicates if a firm has enough short-term assets without selling inventory to cover its immediate liabilities.
Profitability ratios and activity ratios 4. Liquidity ratios play a key role in assessing the short-term financial position of a business. Liquidity ratio tells about how well placed is the company to pay-off its short term debts like current liabilities.
Ratio analysis is a quantitative method of gaining insight into a companys liquidity operational efficiency and profitability by studying its financial statements such as the balance sheet and. Calculation of ratios is comparatively simple routine clerical in nature but interpretation of ratios is highly sophisticated and intricate phenomenon. This is often referred to as the acid test.
Liquidity ratio analysis is the use of several ratios to determine the ability of an organization to pay its bills in a timely manner. Effectiveness of Working Capital. Financial ratio analysis A reading prepared by Pamela Peterson Drake O U T L I N E 1.
This analysis is important for lenders and creditors who want to gain some idea of the financial situation of a. Financial leverage ratios 5. The liquidity ratio then is a computation that is used to measure a.