Liquidity Ratio

LIQUIDITY RATIO : To evaluate whether a company will be able to pay its short term debts and interests.

Examples of Liquidity Ratio:
  1)  CURRENT RATIO
CURRENT RATIO = CURRENT ASSET / CURRENT LIABILITY
To determine there are enough current asset to pay off current liability.

  2) QUICK RATIO
QUICK RATIO = (CASH + SHORT TERM MARKETABLE SECURITY + RECEIVABLES) / CURRENT LIABILITY
More conservative compared to CURRENT RATIO because inventory and prepaid expense which hard to liquidate are neglected.

  3)  CASH RATIO
CASH RATIO = (CASH + SHORT TERM MARKETABLE SECURITY ) / CURRENT LIABILITY
The most conservative method since only CASH and SHORT TERM MARKETABLE SECURITY that can fully liquidate to its fair value in short time.

  4) DEFENSIVE INTERVAL RATIO
DEFENSIVE INTERVAL RATIO = (CASH + SHORT TERM MARKETABLE SECURITY ) / DAILY EXPENDITURE
To evaluate new or highly dangerous company how many days the company can survive only based on its cash.

  5)  CASH CONVERSION CYCLE
CASH CONVERSION CYCLE = DAYS OF INVENTORY ON HAND + DAYS OF SALES OUTSTANDING - NUMBER OF DAYS OF PAYABLE
To calculate number of days between cash paid to suppliers and cash received from customers.

Other Info: 
"ACTIVITY RATIO"
"SOLVENCY RATIO"
"PROFITABILITY RATIO"
"VALUATION RATIO"