Xacc 280 Week 4 Liquidity Ratios

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Liquidity Ratios Working Capital = Current Assets – Current Liabilities Current Ratio = Current Assets / Current Liabilities Quick Ratio = (Current Assets – Inventory) / Current Liabilities 1. These are all useful in evaluating a company’s liquidity which is their ability to pay their debts as they become due. We are basically looking at the amount of current assets that we have available to cover our current liabilities. The quick ratio factors out inventory from our current assets because it is generally not as liquid as our other current assets meaning that it cannot be converted to cash as quickly. Long-Term Solvency Ratios Debt to Assets Ratio = Total Liabilities / Total Assets Debt to Equity Ratio = Total Liabilities /

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