In this case both Current Assets and Current Liabilities are to be taken into consideration.
Current Assets include:
- Prepaid expenses
- Cash in bank and hand
- Sundry debtors
- Stocks and receivable bills
- Short term investments
- Marketable securities
- Accrued income
Current Ratio = Current Assets/ Current Liabilities
Current Liabilities include:
- Bank overdraft
- Payable bills
- Sundry creditors
- Advance income
- Outstanding expenses
- Income tax provision
- Payable dividend
- Bad debt provision
Liquid/Acid test/Quick Ratio are:
Liquid Liabilities/ Liquid Assets (or) LA/CL or Acid Test Ratio = Quick assets/ Quick Liabilities
Liquid liabilities or quick liabilities = All current liabilities except bank overdraft
Liquid Assets or quick assets = All current assets except stock
Net working Capital Ratio = Net working Capital / Net Assets
Net working capital = Current assets – Current liabilities
Cash Position Ratio = (Cash + Marketable Securities)/Current Liabilities
Solvency Ratio = Outside Liabilities/ Total Assets
Links of Previous Main Topic:-
- Introduction to accounting and branches of accounting
- Preparation of final accounts
- Introduction of fund flow statement
- Introduction cash flow statement
- Ratio analysis significance of ratio analysis
- Advantages of ratio analysis
- Limitation of ratio analysis
- Classification of ratios
Links of Next Finance Topics:-