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Liquidity (Short-term Solvency} Ratios

Formula

1. Current Ratio =   Current Assets/ Current Liabilities

Current Assets:

Cash in hand and Bank, Stock, sundry Debtors, bills receivable, short term investments, marketable securities, accrued incomes, prepaid expenses.

Current Liabilities:

Sundry creditors, bills payable, Bank overdraft, outstanding expenses, income received in advance, income tax provisions, bad debts provisions, dividend payable, any other account which is payable in short period.

2. Quick Ratio or Liquid Ratio or Acid test ratio

Acid Test Ratio = Quick assets/ Quick Liabilities (or)

Liquid Assets / Liquid Liabilities (or) LA/CL

Quick assets or liquid assets = All current assets except stock

Quick Liabilities or liquid liabilities = All current liabilities except bank overdraft

3. Cash Position Ratio = (Cash + Marketable Securities)/Current Liabilities

4. Net working Capital Ratio = Net working Capital / Net Assets

Net working capital = Current assets – Current liabilities

5. Solvency Ratio = Outside Liabilities/ Total Assets