Explore jobs
Find specific jobs
Explore careers
Explore professions
Best companies
Explore companies
This question is about employer.
How to calculate liquidity ratio
To calculate the liquidity ratio you need to divide your company's current liabilities by the cash flows seen from operating your organization over a specific time period. The cash flow variable is determined by combining net business revenue, non-cash expenses, and working capital changes.
A liquidity ratio is a measurement that exhibits how much money a company has available to them in order to make payments on applicable debts and bills. Most liquidity ratios reflect a company's ability to pay off short-term debts, bills, or other obligations instead of long-term items of these qualities.
The higher a liquidity ratio is, the more flexible and flush a company is in terms of its liquid assets that can be used to meet financial obligations and needs. Low liquidity ratios often indicate that a company does not have enough money to pay off its debts, bills, and other financial obligations.
There are different types of liquidity ratios. Here are the most common ones companies use and their formulas:
Current liquidity ratio
This liquidity ratio applies to a company's ability to pay its current financial obligations. Many organizations tend to define "current" as within the current fiscal year of the company.
Current Assets / Current Liabilities = Current Liquidity Ratio
Quick liquidity ratio
A quick liquidity ratio is sometimes also referred to as an acid-test ratio. This gauges whether or not an organization can pay its extremely short-term expenses if it uses assets that are considered the most liquid. The quick liquidity ratio does not include inventories as an asset.
(Current Assets - Inventory - Prepaid Costs) / Current Liabilities = Quick Liquidity Ratio
Day Sales Outstanding (DSO) liquidity ratio
The Day Sales Outstanding (DSO) liquidity ratio gauges and evaluates the length of time needed for a company to collect payment from a customer regarding a sale of a product or service. Delays in receiving customer payments can have a bad impact on an organization's ability to pay its financial obligations.
Average Accounts Receivable / Revenue Per Day = Day Sales Outstanding (DSO) liquidity ratio
Cash liquidity ratio
The Cash liquidity ratio can also sometimes be referred to as the cash asset ratio. This measures strictly the company's on-hand cash and those assets that are considered cash equivalent when compared to all of the company's specific liabilities. Creditors often use this type of liquidity ratio.
Cash + Cash Equivalents / Current Liabilities = Cash liquidity ratio
Working Capital liquidity ratio
The Working Capital liquidity ratio is sometimes also referred to as the net working capital ratio. This gauges and measures a company's comprehensive financial health status instead of just focusing on the organization's ability to meet bills, debts, and other financial obligations. Companies use this ratio to determine how much money they have for investing.
Current Assets - Current Liabilities = Working Capital liquidity ratio
Choose from 10+ customizable resume templates
Zippia allows you to choose from different easy-to-use templates, and provides you with expert advice. Using the templates, you can rest assured that the structure and format of your resume is top notch. Choose a template with the colors, fonts & text sizes that are appropriate for your industry.
