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eduard
3 years ago
12

Liquidity ratios are used to measure a firm's ability to meet its obligations as they come due. Two of the most commonly used li

quidity ratios are the: (1) Current ratio and (2) Quick, or acid test, ratio. The current ratio is the most commonly used measure of solvency. Its equation is:______.
If a firm is having financial difficulty, it typically begins to pay its accounts payable more slowly and to borrow from the bank—both of which will increase its current causing a decline in the current ratio. The quick ratio is a measure of a firm's ability to pay off obligations without relying on the sale of, which are typically the least liquid of a firm's current assets. Its equation is:________.
Business
1 answer:
ZanzabumX [31]3 years ago
3 0

Explanation:

The equation of the current ratio is shown below:

Current ratio = Total Current assets ÷ total current liabilities

It shows a relationship between the total current assets and the total current liabilities and it is always expressed in times

And, the equation of the quick ratio is shown below:

Quick ratio = Quick assets ÷ total current liabilities

where,

Quick assets = Cash and cash equivalents + short-term investments + Accounts receivable (net)

It is also always expressed in times. Moreover, the inventory is the least liquid  firm current assets

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