Fantastic Liquidity Ratio Analysis Example
Liquidity Ratio Analysis Example A study was undertaken to compare the financial performance of two electric giants ABB and Rockwell.
Liquidity ratio analysis example. Current Ratio Current AssetsCurrent Liabilities. That is current assets and current liabilities should be properly valued and the nature of assets should be kept in view. Click on Analysis of Financial Statement of a Business to read the solved example of liquid ratio.
In other words Liquidity Ratios measure how quickly assets can be turned into cash in order to pay the companys short-term debts. The current ratio shows how many times over the firm can pay its current debt obligations based on its assets. This analysis is important for lenders and creditors who want to gain some idea of the financial situation of a borrower or customer before granting them credit.
While you can access financial statements directly on company websites J. As an example of how to properly examine liquidity ratios we will use the financial statement data for J. The principal technique used for conducting such a financial statement analysis included ratio analysis.
Liquidity Ratios examine the capability of a company to repay both its current liabilities as they become due along with their long-term liabilities as they become current. From the figures given in Example 1 the liquid ratio may be calculated as follows. 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.
Found in AAIIs fundamental research database Stock Investor Pro. Alexanders only offers two years of balance sheets at its site. Analysis and Interpretation Ideal Liquid Ratio.
The liquid ratio is always less than current ratio because the former excludes inventory from the calculation which is not convertible into cash as short notice. This is often referred to as the acid test. A minimum of 3.