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    Principal Liquidity Ratios: 1. Current Ratio

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    SHUBHAM JAIN
    This document discusses three liquidity ratios: current ratio, quick ratio, and debt to equity ratio. The current ratio measures a company's ability to pay short-term debts by comparing current assets to current liabilities. A higher ratio is more favorable. The quick ratio is similar but compares more liquid current assets to current liabilities. The debt to equity ratio compares total liabilities to total equity to show how much financing comes from creditors versus investors, with a lower ratio generally implying more stability. Tables show the company's ratios have decreased slightly over the past four years.

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    Principal Liquidity Ratios: 1. Current Ratio

    Uploaded by

    SHUBHAM JAIN
    35 views4 pages
    This document discusses three liquidity ratios: current ratio, quick ratio, and debt to equity ratio. The current ratio measures a company's ability to pay short-term debts by comparing current assets to current liabilities. A higher ratio is more favorable. The quick ratio is similar but compares more liquid current assets to current liabilities. The debt to equity ratio compares total liabilities to total equity to show how much financing comes from creditors versus investors, with a lower ratio generally implying more stability. Tables show the company's ratios have decreased slightly over the past four years.

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    Company wise

    Original Title

    Financial Data

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    This document discusses three liquidity ratios: current ratio, quick ratio, and debt to equity ratio. The current ratio measures a company's ability to pay short-term debts by comparing current assets to current liabilities. A higher ratio is more favorable. The quick ratio is similar but compares more liquid current assets to current liabilities. The debt to equity ratio compares total liabilities to total equity to show how much financing comes from creditors versus investors, with a lower ratio generally implying more stability. Tables show the company's ratios have decreased slightly over the past four years.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    35 views4 pages

    Principal Liquidity Ratios: 1. Current Ratio

    Uploaded by

    SHUBHAM JAIN
    This document discusses three liquidity ratios: current ratio, quick ratio, and debt to equity ratio. The current ratio measures a company's ability to pay short-term debts by comparing current assets to current liabilities. A higher ratio is more favorable. The quick ratio is similar but compares more liquid current assets to current liabilities. The debt to equity ratio compares total liabilities to total equity to show how much financing comes from creditors versus investors, with a lower ratio generally implying more stability. Tables show the company's ratios have decreased slightly over the past four years.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    of 4

    Liquidity ratio refers as a computation that is used to measure a company's ability to pay its

    short-term debts. This type of ratios normally indicates the ability of the business to meet the
    maturing or current debts, the efficiency of the management in utilizing the working capital,
    and the program attained in the current financial position.

    Principal Liquidity Ratios:


    1. Current Ratio:
    The current ratio helps investors and creditors understand the liquidity of a
    company and how easily that company will be able to pay off its current
    liabilities. So a current ratio of 4 would mean that the company has 4 times
    more current assets than current liabilities.
    A higher current ratio is always more favourable than a lower current ratio
    because it shows the company can more easily make current debt payments.

    Current assets normally include: Cash in hand and at bank, Marketable Securities
    Inventories and Prepaid Expenses.
    Current Liabilities include: Items such as Outstanding or Accrued Expenses, Sundry
    Creditors, Bills Payable, Bank Overdraft, Provision for Taxation, etc.

    YEAR
    Current ratio

    Mar-16

    Mar-15

    Mar-14

    Mar-13

    1.14

    1.16

    1.38

    1.23

    Current Ratio
    0.5
    0.45
    0.4
    0.35
    0.3
    0.25
    0.2
    0.15
    0.1
    0.05
    0

    Year

    Mar-16

    Mar-15

    Mar-14

    Mar-13

    Comments:
    In Reliance Industries Ltd. the current ratio is 1.14:1 in Mar-16. It means
    that for one rupee of current liabilities, the current assets are 1.14 rupee
    is available to the them. In other words the current assets are 1.14 times
    the current liabilities.
    The consistency decrease in the value of current assets will decrease the
    ability of the company to meets its obligations & therefore from the point
    of view of creditors the company is more risky.
    2] Quick Ratio:
    Formula:
    Quick assets
    Quick ratio =

    Quick liabilities

    YEAR

    Mar-16

    Mar-15

    Mar14

    Mar-13

    Quick Ratio

    0.31

    0.63

    1.03

    1.12

    Quick Ratio
    0.5
    0.45
    0.4
    0.35
    0.3
    0.25
    0.2
    0.15
    0.1
    0.05
    0

    Year

    Mar-16

    Mar-15

    Mar-14

    Mar-13

    Quick assets are current assets that can be converted to cash within 90 days or in the shortterm. Cash, cash equivalents, short-term investments or marketable securities, and current
    accounts receivable are considered quick assets.
    It shows how well a company can quickly convert its assets into cash in order to pay off its
    current liabilities.

    3) Debt Equity Ratio:


    The debt to equity ratio shows the percentage of company financing that comes from
    creditors and investors. A higher debt to equity ratio indicates that more creditor financing
    (bank loans) is used than investor financing (shareholders).
    A debt ratio of .5 means that there are half as many liabilities than there is equity.
    Debt Equity Ratio = Total Liablities/Total Equity
    YEAR

    Mar-16

    Mar-15

    Mar14

    Mar-13

    Debt Equity Ratio

    0.38

    0.41

    0.43

    0.30

    Quick Ratio
    0.5
    0.45
    0.4
    0.35
    0.3
    0.25
    0.2
    0.15
    0.1
    0.05
    0

    Year

    Mar-16

    Mar-15

    Mar-14

    Mar-13

    A lower debt to equity ratio usually implies a more financially stable business. Companies
    with a higher debt to equity ratio are considered more risky to creditors and investors than
    companies with a lower ratio.
    Creditors view a higher debt to equity ratio as risky because it shows that the investors
    haven't funded the operations as much as creditors have.

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