{"id":3241,"date":"2019-12-27T16:19:09","date_gmt":"2019-12-27T16:19:09","guid":{"rendered":"https:\/\/commerceiets.com\/?p=3241"},"modified":"2019-12-27T16:19:09","modified_gmt":"2019-12-27T16:19:09","slug":"liquidity-ratios","status":"publish","type":"post","link":"https:\/\/commerceiets.com\/liquidity-ratios\/","title":{"rendered":"LIQUIDITY RATIOS"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_72 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/commerceiets.com\/liquidity-ratios\/#LIQUIDITY_RATIOS\" title=\"LIQUIDITY RATIOS\">LIQUIDITY RATIOS<\/a><ul class='ez-toc-list-level-2' ><li class='ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/commerceiets.com\/liquidity-ratios\/#TYPES_OF_LIQUIDITY_RATIOS\" title=\"TYPES OF LIQUIDITY RATIOS\">TYPES OF LIQUIDITY RATIOS<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/commerceiets.com\/liquidity-ratios\/#CURRENT_RATIO\" title=\"CURRENT RATIO\">CURRENT RATIO<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/commerceiets.com\/liquidity-ratios\/#LIQUID_RATIO\" title=\"LIQUID RATIO\">LIQUID RATIO<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/commerceiets.com\/liquidity-ratios\/#_ABSOLUTE_LIQUID_RATIO\" title=\"&nbsp;ABSOLUTE LIQUID RATIO\">&nbsp;ABSOLUTE LIQUID RATIO<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h1 class=\"has-text-align-center wp-block-heading\"><span class=\"ez-toc-section\" id=\"LIQUIDITY_RATIOS\"><\/span><strong>LIQUIDITY RATIOS<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h1>\n\n\n\n<p>The liquidity ratios are used to assess the short term\nfinancial position of the firm. Liquidity refers to the ability of the firm to\nmeet its current liabilities. That is why these ratios are also known as\n\u2018short-term solvency ratios\u2019. These ratios indicate the firm\u2019s ability to meet\nits current obligations out of current resources.<\/p>\n\n\n\n<p class=\"has-pale-cyan-blue-background-color has-background\"><strong>ACCORDING TO SALOMAN\nJ FLINK<\/strong><\/p>\n\n\n\n<p>\u201cLiquidity is the ability of the firm to meet its current\nobligation as they fall due.<\/p>\n\n\n\n<p class=\"has-pale-cyan-blue-background-color has-background\"><strong>ACCORDING TO HERBERT\nB MAYO<\/strong><\/p>\n\n\n\n<p>\u201cLiquidity is the ease with which assets may be converted\ninto cash without loss.\u201d<\/p>\n\n\n\n<h2 class=\"has-text-align-center wp-block-heading\"><span class=\"ez-toc-section\" id=\"TYPES_OF_LIQUIDITY_RATIOS\"><\/span>TYPES OF LIQUIDITY RATIOS<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The various liquidity ratios are as follows:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"281\" height=\"179\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/12\/download-3.jpg\" alt=\"\" class=\"wp-image-3203\"\/><\/figure>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\"><span class=\"ez-toc-section\" id=\"CURRENT_RATIO\"><\/span><strong>CURRENT RATIO<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><a href=\"https:\/\/commerceiets.com\/current-ratio-formula\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"Current ratio (opens in a new tab)\">Current ratio<\/a> explains the relationship between current assets and current liabilities. This ratio is also known as working capital ratio. This ratio is a measure of general liquidity and is most likely to make the analysis of the short term financial position or liquidity position of the firm. It is calculated by dividing the current assets with the current liabilities.<\/p>\n\n\n\n<p><strong>CURRENT RATIO=\nCurrent Assets\/ Current Liabilities<\/strong><\/p>\n\n\n\n<p><strong>EXAMPLE:<\/strong> Suppose the current assets of a concern as Rs. 2,50,000 and current liabilities of the concern are Rs. 1,00,000. The current ratio will be calculated as follows:<\/p>\n\n\n\n<p>Current ratio= Current Assets\/ Current Liabilities<\/p>\n\n\n\n<p>Current ratio= 2,50,000\/1,00,000<\/p>\n\n\n\n<p>Current Ratio= 2.5:1.<\/p>\n\n\n\n<p><strong>CURRENT ASSETS<\/strong><\/p>\n\n\n\n<p>Current assets are the assets which are likely to be\nconverted into cash or cash equivalents within 12 months from the date of\nbalance sheet or within the period of operating cycle. Current assets include\nthe following assets:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Current investments<\/li><li>Stock or inventories<\/li><li>Trade receivables i.e. debtors and bills\nreceivables.<\/li><li>Short term loans and advances<\/li><li>Cash in hand<\/li><li>Cash at bank<\/li><li>Prepaid expenses<\/li><li>Accrued incomes, etc.<\/li><\/ul>\n\n\n\n<p><strong>CURRENT LIABILITIES<\/strong><\/p>\n\n\n\n<p>Current liabilities are the liabilities payable within 12\nmonths from the date of balance sheet or within the period of operating cycle.\nCurrent liabilities includes the following liabilities:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Short term borrowings<\/li><li>Trade payables i.e. creditors and bills payable<\/li><li>Short term provisions<\/li><li>Outstanding expenses<\/li><li>Incomes received in advance, etc.<\/li><\/ul>\n\n\n\n<p><strong>&nbsp;INTERPRETATION OF THE RATIO<\/strong><\/p>\n\n\n\n<p>A relatively high current ratio is an indication that the\nfirm is liquid and has the ability to pay its current obligations in time as and\nwhen they become due. The high current ratio may not be favorable due to the\nfollowing reasons:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>There may be slow moving stocks. The stocks will\nbe pile up due to poor sale.<\/li><li>The figures of debtors may go up because debt\ncollection is not satisfactory.<\/li><li>The cash or bank balances may be lying idle\nbecause of insufficient investments opportunities.<\/li><\/ul>\n\n\n\n<p>A relatively low current ratio represents that the liquidity\nposition of the firm is not good and the firm shall not be very able to pay its\ncurrent liabilities in time without facing difficulties. A low current ratio\nmay be not favorable due to the following reasons:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>There may not be sufficient funds to pay off\nliabilities.<\/li><li>There business may be trading beyond its\ncapacity. The resources may not warrant the activities.<\/li><\/ul>\n\n\n\n<p><strong>IDEAL CURRENT RATIO<\/strong><\/p>\n\n\n\n<p>The ideal current ratio is considered in the ratio of 2:1\ni.e. current assets double the current liabilities is considered to be\nsatisfactory. The idea of having double the current assets as compared to\ncurrent liabilities is to provide for delays and losses in the realization of\ncurrent assets.<\/p>\n\n\n\n<p><strong>FACTORS TO BE\nCONSIDERED WHILE USING CURRENT RATIO<\/strong><\/p>\n\n\n\n<p>A number of factors should be taken into consideration\nbefore reaching the conclusion about short-term financial position. Some of\nthese factors are as follows:<\/p>\n\n\n\n<p><em>TYPE OF BUSINESS:<\/em> Current ratio is influenced by the type of business. A business with heavy investments in fixed assets may be successful even if the ratio is low. On the other hand, a trading concern will require a high current ratio because it has to pay its suppliers quickly.<\/p>\n\n\n\n<p><em>TYPES OF PRODUCTS: <\/em>The type of products in which a business deals also influences current ratio. A business dealing in goods whose demand changes fast will require a higher current ratio. On the other hand, if products have more intrinsic value such as gold, silver, metals etc. a lower current ratio may also do.<\/p>\n\n\n\n<p><em>REPUTATION OF THE CONCERN: <\/em>A business unit with better goodwill and reputation may afford a small current ratio because the turnover is more and creditors also allow credit for longer periods. A new concern or a concern which has not established its reputation will need higher current assets to pay current liabilities in time.<\/p>\n\n\n\n<p><em>SEASONAL INFLUENCE: <\/em>Current assets and current liabilities change with the seasons. In a peak season, current assets will be more and current ratio will be high. On the other hand this ratio will go down when the season is off.<\/p>\n\n\n\n<p><em>TYPE OF ASSETS AVAILABLE:<\/em> This type of current assets in the business also influences interpretation of current ratio. If the current assets include large amounts of slow moving stocks then even a high ratio may not be satisfactory.<\/p>\n\n\n\n<p>All the above mentioned factors should be taken into mind\nwhile interpreting current ratio.<\/p>\n\n\n\n<p><strong>OBJECTIVE AND\nSIGNIFICANCE OF CURRENT RATIO<\/strong><\/p>\n\n\n\n<p>Current ratio is a general and quick measure of liquidity of\na firm. It represents the \u2018margin of safety\u2019 or \u2018cushion\u2019 available to the\ncreditors and other current liabilities. It is most widely used for making\nshort-term analysis of the financial position or short-term solvency of the\nfirm.<\/p>\n\n\n\n<p><strong>LIMITATIONS OF\nCURRENT RATIO<\/strong><\/p>\n\n\n\n<p>The following are the limitations of the current ratio are\nas follows:<\/p>\n\n\n\n<p><em>CRUDE RATIO: <\/em>It is a crude ratio because it measures only the quantity and not the quality of current assets.<\/p>\n\n\n\n<p><em>WINDOW DRESSING: <\/em>The valuation of current assets and window dressing is another problem if current ratio. Current assets and liabilities are manipulated in such a way that current ratio loses its significance. Window dressing may be indulged in the following ways:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Over valuation of a closing stock.<\/li><li>Obsolete or worthless stocks are shown in the\nclosing inventory at their costs instead of writing them off.<\/li><li>Recording in advance cash receipts applicable to\nthe next year\u2019s sales.<\/li><li>Omission of a liability for merchandise included\nin inventory.<\/li><li>Treating a short-term obligation as a long-term\nliability.<\/li><li>Inadequate provision for bad and doubtful debts.<\/li><li>Inclusion in debtors advance payment for\npurchase of fixed assets.<\/li><\/ul>\n\n\n\n<p>Window dressing is done to show current ratio at a\nparticular figure. It does not present the real financial position of the\nconcern. The inferences drawn on such a will be faulty and deceptive.<\/p>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\"><span class=\"ez-toc-section\" id=\"LIQUID_RATIO\"><\/span><strong>LIQUID RATIO<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><a href=\"https:\/\/commerceiets.com\/liquid-ratio-interpretation\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"Liquid Ratio (opens in a new tab)\">Liquid Ratio<\/a>, a type of liquidity ratio, may be defined as the relationship between quick or liquid assets and current liabilities. An asset is said to be liquid if can be converted into cash within a short period without loss of value. The liquid ratio is also known as <a href=\"https:\/\/commerceiets.com\/quick-ratio\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"Quick ratio (opens in a new tab)\">Quick ratio<\/a> or <a href=\"https:\/\/commerceiets.com\/acid-test-ratio-formula\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"acid test ratio (opens in a new tab)\">acid test ratio<\/a>. This ratio is the more rigorous test of liquidity that the current ratio. The liquid ratio interpretation is made with reference to current assets excluding prepaid expenses and inventories i.e. liquid assets and current liabilities. The liquid ratio is calculated as follows:<\/p>\n\n\n\n<p><strong>Liquid Ratio= Liquid Assets\/ Current Liabilities.<\/strong><\/p>\n\n\n\n<p><strong>EXAMPLE:<\/strong> Suppose\nthe liquid assets of a concern as Rs. 2,50,000 and current liabilities of the\nconcern are Rs. 1,00,000. The current ratio will be calculated as follows:<\/p>\n\n\n\n<p>Liquid ratio= Liquid Assets\/ Current Liabilities<\/p>\n\n\n\n<p>Liquid ratio= 2,50,000\/1,00,000<\/p>\n\n\n\n<p>Liquid Ratio= 2.5:1.<\/p>\n\n\n\n<p><strong>LIQUID ASSETS:<\/strong>\nLiquid assets are the assets that can be easily converted into cash. These\nassets include the following assets:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Cash in hand<\/li><li>Cash at bank<\/li><li>Bills receivables<\/li><li>Sundry debtors<\/li><li>Marketable securities<\/li><li>Temporary investments<\/li><\/ul>\n\n\n\n<p>Assets not included in liquid assets are:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Prepaid expenses<\/li><li>Inventories.<\/li><\/ul>\n\n\n\n<p>These can be calculated as:<\/p>\n\n\n\n<p><strong>Liquid Assets= Current Assets- Prepaid expenses- Inventories<\/strong><\/p>\n\n\n\n<p><strong>CURRENT LIABILITIES:<\/strong>\nCurrent liabilities are the liabilities payable within 12 months from the date\nof balance sheet or within the period of operating cycle. Current liabilities\ninclude the following liabilities:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Short term borrowings<\/li><li>Trade payables i.e. creditors and bills payable<\/li><li>Short term provisions<\/li><li>Outstanding expenses<\/li><li>Incomes received in advance, etc.<\/li><\/ul>\n\n\n\n<p><strong>LIQUID RATIO\nINTERPRETATION<\/strong><\/p>\n\n\n\n<p>A high liquid ratio is an indication that the firm is liquid\nand has the ability to meet its current or liquid liabilities. The high liquid\nratio is bad when the firm is having slow-paying debtors.<\/p>\n\n\n\n<p>On the other hand, a low liquid ratio represents that the\nfirm\u2019s liquidity position is not good. The low liquid ratio may be considered\nsatisfactory if it has fast moving inventories.<\/p>\n\n\n\n<p><strong>IDEAL LIQUID RATIO<\/strong><\/p>\n\n\n\n<p>The ideal liquid ratio is 1:1. It means the current assets\nshould be equal to the current liabilities only then the firm will be able to\nmeet its short term obligations. Although the liquid ratio is more rigorous\ntest of liquidity than current ratio, yet it should be used cautiously and rule\n1:1 should not be used blindly. A liquid ratio of 1:1 does not necessarily mean\nsatisfactory liquidity position if all the debtors cannot be realized and cash\nis needed immediately to meet the current obligations of the firm.<\/p>\n\n\n\n<p><strong>SIGNIFICANCE OF\nLIQUID RATIO<\/strong><\/p>\n\n\n\n<p>The liquid ratio is very useful in measuring the liquidity\nposition of a firm. It measures the firm\u2019s capacity to pay off current\nobligations immediately and is a more rigorous test of liquidity than the\ncurrent ratio. It is used as a complementary ratio to the current ratio.<\/p>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\"><span class=\"ez-toc-section\" id=\"_ABSOLUTE_LIQUID_RATIO\"><\/span><strong>&nbsp;ABSOLUTE LIQUID RATIO<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><a href=\"https:\/\/commerceiets.com\/absolute-liquid-ratio-formula\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"Absolute Liquid Ratio (opens in a new tab)\">Absolute Liquid Ratio<\/a> is a type of liquidity ratio that is calculated to analyze the short term solvency or financial position of the firm. It is calculated to exclude the receivables from the current and liquid assets and to know about the absolute liquid assets. Although receivables, debtors and bills receivables are generally more liquid than inventories, yet there may be doubts regarding their realization into cash immediately or on time as there are the chances of bad debts. To exclude this possibility, absolute ratio is calculated. The absolute liquid ratio is also known as <a href=\"https:\/\/commerceiets.com\/cash-ratio\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"Cash ratio (opens in a new tab)\">Cash ratio<\/a>. The absolute liquid ratio formula is:<\/p>\n\n\n\n<p><strong>Absolute Liquid\nRatio= Absolute Liquid Assets\/ Current Liabilities<\/strong><\/p>\n\n\n\n<p><strong>ABSOLUTE LIQUID\nASSETS: <\/strong>The assets included in absolute liquid assets are as follows:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Cash in\nHand:<\/strong> Cash in hand means the cash available with the business house at a\npoint of time.<\/li><li><strong>Cash at\nBank:<\/strong> Cash at bank means the cash that is with the business by the way of\ndeposits in the bank accounts may it be saving account, current account or any\nkind of other account.<\/li><li><strong>Marketable\nSecurities: <\/strong>Marketable Securities are those securities that can be readily\nconverted in to the cash by sale. These are generally traded in the money\nmarket. These securities are also known as temporary investments.<\/li><\/ul>\n\n\n\n<p><strong>CURRENT LIABILITIES: <\/strong>Current\nliabilities are the liabilities payable within 12 months from the date of\nbalance sheet or within the period of operating cycle. Current liabilities\ninclude the following liabilities:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Short\nterm borrowings: <\/strong>Short term borrowings are those borrowings that the\nbusiness house has to repay within 12 months or a year. These borrowings may be\nsecured or unsecured.<\/li><li><strong>Trade\npayables i.e. creditors and bills payable: <\/strong>Trade Payables includes the\ncreditors or bills payable. Creditors are the persons from whom the business\npurchases the goods on credit and make guarantee to repay their payment on some\nfuture date.<\/li><li><strong>Short\nterm provisions: <\/strong>&nbsp;The provisions like\nprovision for doubtful debts, provisions for repairs, provision for taxation\nare short term provisions. These made to meet any short term liability that\nmight arise in the future.<\/li><li><strong>Outstanding\nexpenses: <\/strong>The expenses which have become due but are not paid yet are\nOutstanding Expenses. Example of these expenses is: Salary due but not paid,\nElectricity bill due but not paid, etc.<\/li><li><strong>Incomes\nreceived in advance: <\/strong>The incomes received in advance makes the business\nhouse liable to perform the contract.<\/li><\/ul>\n\n\n\n<p><strong>IDEAL ABSOLUTE LIQUID\nRATIO<\/strong><\/p>\n\n\n\n<p>The ideal standard for this ratio is 0.5:1 i.e. 50%. This\nmeans Rs. 1 worth absolute liquid assets are considered adequate to pay Rs. 2\nworth current liabilities in time as all the creditors are not expected to\ndemand cash at the same time and then cash may also be realized from debtors\nand inventories.<\/p>\n\n\n\n<p><strong>EXAMPLE: <\/strong>Suppose\nthe firm has following assets and liabilities: <\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>\n  Goodwill\n  <\/td><td>\n  50,000\n  <\/td><td>\n  Cash at bank\n  <\/td><td>\n  30,000\n  <\/td><\/tr><tr><td>\n  Plant and machinery\n  <\/td><td>\n  4,00,000\n  <\/td><td>\n  Inventories\n  <\/td><td>\n  75,000\n  <\/td><\/tr><tr><td>\n  Trade investments\n  <\/td><td>\n  2,00,000\n  <\/td><td>\n  Bank overdraft\n  <\/td><td>\n  70,000\n  <\/td><\/tr><tr><td>\n  Marketable securities\n  <\/td><td>\n  1,50,000\n  <\/td><td>\n  Sundry creditors\n  <\/td><td>\n  60,000\n  <\/td><\/tr><tr><td>\n  Bills receivables\n  <\/td><td>\n  40,000\n  <\/td><td>\n  Bills payable\n  <\/td><td>\n  90,000\n  <\/td><\/tr><tr><td>\n  Cash in hand\n  <\/td><td>\n  45,000\n  <\/td><td>\n  Outstanding expenses\n  <\/td><td>\n  30,000\n  <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>Absolute Liquid Ratio= Absolute Liquid Assets\/ Current\nLiabilities<\/p>\n\n\n\n<p>Absolute liquid assets= marketable securities+ cash in hand+\ncash at bank<\/p>\n\n\n\n<p>=1,50,000+ 45,000+ 30,000<\/p>\n\n\n\n<p>=2,25,000<\/p>\n\n\n\n<p>Current Liabilities= Bank Overdraft+ Sundry Creditors +\nBills payable+ Outstanding expenses<\/p>\n\n\n\n<p>= 70,000+ 60,000+ 90,000+30,000<\/p>\n\n\n\n<p>= 2,50,000<\/p>\n\n\n\n<p>Absolute liquid ratio= 2,25,000\/ 2,50,000<\/p>\n\n\n\n<p>= 0.9.<\/p>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link\" href=\"https:\/\/www.linkedin.com\/in\/kajal-mahajan-7549b2197\/\" target=\"_blank\" rel=\"noreferrer noopener\">CONNECT ON LINKEDIN<\/a><\/div>\n<\/div>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/accounting\/\"><strong>Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/non-profit-organisation\/\"><strong>Non profit organisation<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/depreciation\/\"><strong>Depreciation<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/liquidity-ratios-types\/\"><strong>Liquidity ratios<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/nature-of-accounting\/\"><strong>Nature of Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/receipt-and-payment-account-pdf\/\"><strong>Receipts and Payments Account<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/depreciation-accounting\/\"><strong>Depreciation Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/acid-test-ratio-formula\/\"><strong>Acid Test Ratio<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/benefits-of-accounting\/\"><strong>Benefits of Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/scope-of-accounting\/\"><strong>Scope of accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/hire-purchase-accounting-notes-pdf\/\"><strong>Hire Purchase Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cash-ratio\/\"><strong>Cash Ratio<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/difference-between-cost-accounting-and-financial-accounting\/\"><strong>Difference between cost accounting and financial accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-financial-accounting-management-accounting-and-cost-accounting\/\"><strong>Financial accounting, cost accounting and management accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-hire-purchase-and-instalment\/\"><strong>Difference between hire purchase and instalment system<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/financial-ratio-analysis\/\"><strong>Financial ratio analysis<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/difference-between-transaction-and-event\/\"><strong>Difference between transaction and event<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/transactions\/\"><strong>Transactions<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/users-of-accounting\/\"><strong>Users of Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/current-ratio-formula\/\"><strong>Ratio analysis<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/limitations-of-accounting-2\/\"><strong>Limitation of Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/capital-expenditure\/\"><strong>Capital Expenditure<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/instalment-system\/\"><strong>Instalment System<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-consignment-and-sale\/\"><strong>Difference between consignment and sale<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/book-keeping\/\"><strong>Book Keeping<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/revenue-expenditure\/\"><strong>Revenue Expenditure<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/reserves-accounting\/\"><strong>Reserves Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-normal-and-abnormal-loss\/\"><strong>Abnormal loss vs normal loss in consignment<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/accountancy\/\"><strong>Accountancy<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-capital-expenditure-and-revenue-expenditure\/\"><strong>Difference between capital and revenue expenditure<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/reserves-accounting\/\"><strong>Provisions&nbsp;<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/treatment-of-loss-on-consignment\/\"><strong>Treatment of loss on consignment<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/accounting-is-an-art-or-science\/\"><strong>Accounting as science or an art<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/accounting-equation\/\"><strong>Accounting Equation<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/single-entry-system-in-accounting\/\"><strong>Single entry system<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/accounting-treatment-of-consignment\/\"><strong>Accounting treatment of consignment<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/accounting-is-an-art-or-science\/\"><strong>Book Keeping vs accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/deferred-revenue-expenditure\/\"><strong>Deferred Revenue Expenditure<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/statement-of-affairs-and-balance-sheet-difference\/\"><strong>Difference between statement of affairs and balance sheet<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-joint-venture-and-consignment\/\"><strong>Joint venture vs consignment<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/accounting-is-an-art-or-science\/\"><strong>Book keeping vs accountancy<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/capital-receipt\/\"><strong>Capital receipt<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/ifrs\/\"><strong>IFRS<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/departmental-accounting\/\"><strong>Departmental Accounting<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/accounting-is-an-art-or-science\/\"><strong>Accounting vs accountancy<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/revenue-receipt\/\"><strong>Revenue receipt<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/balance-sheet\/\"><strong>Balance Sheet<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/methods-of-departmental-accounting\/\"><strong>Methods of departmental accounting<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/basis-of-accounting\/\"><strong>Basis of Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-capital-and-revenue-receipt\/\"><strong>Difference between capital and revenue receipt<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/profit-and-loss-account\/\"><strong>Profit and loss Account<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/allocation-of-expenses-in-departmental-accounting\/\"><strong>Allocation of expenses in departmental accounting<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/branches-of-accounting\/\"><strong>Branches of accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-accounting-concepts-and-conventions\/\"><strong>Difference between accounting concepts and conventions<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/trading-account\/\"><strong>Trading Account<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/inter-departmental-transfers\/\"><strong>Inter-departmental transfers<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/cash-and-mercantile-system-of-accounting\/\"><strong>Cash and mercantile system of accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/accounting-standards\/\"><strong>Accounting Standards<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/voyage-account\/\"><strong>Voyage Account<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/different-types-of-branches\/\"><strong>Different types of branches<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/accounting-principles\/\"><strong>Accounting Principles<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/objectives-of-accounting\/\"><strong>Objectives of Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/accounting-for-incomplete-voyage\/\"><strong>Accounting for Incomplete Voyage<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-departmental-and-branch-accounting\/\"><strong>Departmental vs Branch accounting<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/golden-rules-of-accounting\/\"><strong>Golden ru\nles of accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/process-of-accounting\/\"><strong>Process of Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/joint-venture\/\"><strong>Joint venture<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/methods-of-branch-accounting\/\"><strong>Methods of branch accounting<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/double-entry-system-of-accounting\/\"><strong>Double entry system of book keeping<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/scope-of-accounting\/\"><strong>Scope of Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-joint-venture-and-partnership\/\"><strong>Joint Venture Vs Partnership<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/incorporation-of-branch-trial-balance\/\"><strong>Incorporation of branch trial balance<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/difference-between-double-single-entry-system\/\"><strong>Double entry vs Single entry system<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-accounting-concepts-and-conventions\/\"><strong>Accounting Concepts vs Accounting conventions<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/methods-of-recording-transactions-in-joint-venture\/\"><strong>Methods of recording transactions in Joint Venture<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/garner-vs-murray-rule\/\"><strong>Garner VS Murray Rule<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/history-of-accounting-pdf\/\"><strong>History of Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-provisions-and-reserves\/\"><strong>Difference between provisions and reserves<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/consignment\/\"><strong>Consignment<\/strong><\/a><\/td><td><\/td><\/tr><\/tbody><\/table><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>LIQUIDITY RATIOS The liquidity ratios are used to assess the short term financial position of the firm. Liquidity refers to the ability of the firm to meet its current liabilities. That is why these ratios are also known as \u2018short-term solvency ratios\u2019. These ratios indicate the firm\u2019s ability to meet its current obligations out of&#8230;<\/p>\n<p class=\"more-link-wrap\"><a href=\"https:\/\/commerceiets.com\/liquidity-ratios\/\" class=\"more-link\">Read More<span class=\"screen-reader-text\"> &ldquo;LIQUIDITY RATIOS&rdquo;<\/span> &raquo;<\/a><\/p>\n","protected":false},"author":2,"featured_media":3242,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[19,11],"tags":[],"class_list":["post-3241","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-12-accountancy","category-financial-accounting"],"_links":{"self":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/3241","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/comments?post=3241"}],"version-history":[{"count":0,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/3241\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media\/3242"}],"wp:attachment":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media?parent=3241"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/categories?post=3241"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/tags?post=3241"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}