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Liquidity Ratios
June 07 , 2012

Liquidity ratios provide information about firms ability to make its short term financial obligations from cash or near cash assets to evaluate the risk associated if were to invest in the company. Failure to pay off short term obligation may result in financial difficulty or bankruptcy in near future. It includes current ratio, Quick asset ratio, cash ratio and inventory to net working capital.

Current Ratio = Current Assets / Current Liabilities            

Quick  Ratio =  [Current Assets – (Inventories + Prepayment)] / Current Liabilities

Cash Ratio = Cash and Marketable Securities / Current Liabilities

Inventory to Net working capital = Inventory / (Current Assets – Current Liabilities)

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