Financial Analysis - Ratios - liquidity Ratio - current ratio

current assets/current liabilities

formula for current ratio

compares current assets to current liabilities

what does current ratio compare

to much capital held up in stock

what does it mean assets very high

business doesn't have enough working capital & cant use assets to pay for things when need them

what does it mean if a business has poor liquidity

business dont have enough current assets pay liabilities when due they either have to quickly find money to pay them or give up & stop trading or go into liquidation

what does it mean if business insolvent

falling short of ideal ratio 2:1

what does it mean if ratio <1

shows how solvent business is (how able pay debts)

what does liquidity ratio show

how easily can be turned into cash& used buy things cash very liquid non current assets ie factories not liquid stocks (inventories)& money owed by debtors (receivables are between the two

what is liquidity of an asset

double assets to liabilities 2:1

whats ideal ratio

decrease stocks levels, speed up collection of debts owed to business or slow down payments to creditors (suppliers)

how can liquidity be improved