RATIO ANALYSIS A. LIQUIDITY RATIOS - Short Term Solvency Ratio Formula Numerator Denominator Significance/Indicator 1. Current Ratio Current Assets Current Liabilities Inventories + Debtors + Cash & Bank + Receivables / Accruals + Short terms Loans + Marketable Investments Sundry Creditors (for goods) + Outstanding Expenses (for services) + Short Term Loans &Advances (Cr.) + Bank Overdraft / Cash Credit + Provision for taxation + Proposed or Unclaimed Dividend Ability to repay short-term commitments promptl y . (Short-term Solvency) Ideal Ratio is 2:1.High Ratio indicates existence of idle current assets. 2. Quick Ratio or Acid test ratio Quick Assets Quick Liabilities Current Assets Less : Inventories Less : Prepaid Expenses ...
