This liquidity ratios analysis calculator estimates all the financial liquidity indicators of a company such as: quick ratio, cash ratio, current ratio or working capital. There is more information on how to calculate these figures below the form.

Cash (in hand, in bank):
Marketable securities:
Accounts receivable:
Current assets:
Current liabilities:*

How does this liquidity ratio analysis calculator work?

This financial tool can be useful in accountancy to determine the following liquidity ratios that best describe the status of a business.

  • Working capital which is an indicator that measures two aspects: company's efficiency and company's short-term financial health and its efficiency. Practically it demonstrates whether a business owns sufficient short term assets to support its short term liabilities (debts). Thus its standard formula is the subtraction of the current liabilities from current assets. Current liabilities are considered the short term obligations that are due within one year. While current assets formula is: Cash (in hand, in bank) + Accounts Receivable + Marketable Securities + Inventory + Prepaid Expenses. A result below 1 suggests a negative WC, while a value over 2 indicates that the entity does not have a proactive attitude on investing the assets that are in excess. Financial experts affirm that a working capital between 1.2 and 2 is ideally.

WC = Current Assets – Current Liabilities

  • Quick ratio also known as the acid test ratio represents a liquidity figure that compares the cash and near cash assets of a company versus its short term debts and obligations.  It practically indicates the financial capacity of a company to payout in due time its short term liabilities. The quick ratio formula is:

Quick ratio = (Cash (in hand, in bank) + Accounts receivable + Marketable Securities) / Current liabilities

The interpretation of its levels:

-a value of 1 is ideally as it indicates the company can pay entirely its current liabilities with its cash/near-cash assets;

-a value below 1 demonstrates that a company wouldn’t be able to payout its current debts by using its most liquid assets;

-a value greater than 1 shows that the business has liquid assets that exceeds the current debts. However, a too high quick ratio can be seen as an inefficient strategy as the liquid assets are not used to generate ever more profits by a proper investing/improvement business strategy.

  • Current ratio is an often used financial indicator used to assess a company's liquidity by dividing the current assets value to the current liabilities figure. It checks whether the short term assets cover entirely or not the current debts, thus the higher the ratio is the better. However, in case of a too high value of this ratio, a more detailed analysis of the two variables may indicate inefficiency in the usage of liquid assets.

Current ratio = Current assets / Current liabilities.

  • Cash ratio is an indicator that measures the cash (in hand, in bank or similar) and cash equivalent such as marketable securities (short term investments) against the company’s current liabilities. Thus this indicates the percentage of the extremely liquid assets in comparison to the current debts.  Any value equal or greater than 1 shows that the entity will be able to pay entirely all its short term debts by using its most liquid assets. However an ideal level is considered to be somewhere below 1 as the liquid assets should be used to generate profits by a proper investing and development strategy.

Cash ratio = (Cash (in hand, in bank) + Marketable Securities) / Current liabilities

The algorithm behind this liquidity ratios analysis calculator applies all the equations presented above.

Example of a calculation

Let’s assume a company with the following financial status:

Cash (in hand, in bank) = $150,000

Marketable securities = $100,000

Accounts receivable = $50,000

Current assets = $450,000

Current liabilities = $650,000

Working capital: $-200,000.00

Quick ratio / acid test ratio: 0.46

Current ratio: 0.69

Cash ratio: 0.38

15 Feb, 2015