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

 

 

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