Put simply, liquidity ratios are defined as ratios on a company’s ability to meet dependents or pay off its short-term debt. The value of the liquidity ratio is a measure of how liquid a company is. If you can pay short-term obligations, the company can be considered liquid. Conversely, if it is unable to pay off all its obligations, the company is called liquid and needs to be aware of its business performance. Therefore, you need a system that can help you resist liquidity and another important element of the company, Xero Silverwater.
How to find out whether a company has a healthy current ratio or not is quite easy. When the amount of current assets is greater than the amount of current debt, it means that the company has a good current ratio and can cover its obligations. Continuing with the explanation of the fast ratio, this type of liquidity ratio is the company’s ability to pay off short-term debt. Using current assets, a fast ratio can indicate whether a company still needs to account for inventory. Because the inventory owned by the company usually takes a long time to process into money than other types of assets.
Components in this fast ratio include receivables as well as securities. This means that if the company’s fast ratio is getting higher, its financial condition will also be healthier. That is, companies can pay their short-term obligations more easily. The third kind is the cash ratio which shows the company’s ability to pay the short-term debt using cash. Examples of company cash that are calculated in this ratio are cash funds and cash equivalents, such as checking accounts. When this cash ratio shows a ratio of 1: 1 or greater, it means the company has effective performance and good financial condition.
Next is the cash turnover ratio which shows the relative number between sales and working capital. Included in working capital are all components of current assets reduced by the amount of current debt.