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Difference between current ratio and liquidity ratio.?
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Difference between current ratio and liquidity ratio.?
Both the current ratio and quick ratio are liquidity ratios that measure a company's ability to pay off its short-liabilities with its short-term assets. Although unlikely, the ability of a company to liquidate assets quickly to meet its debt obligations is a measure of financial health.
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Difference between current ratio and liquidity ratio.?
Current Ratio:-
1.it refers to the relastionship between current assets and current liabilities of the bussiness.
2.FORMULA:- Current assets/current liabilities.
3.the ideal current Ratio is 2:1.
Liquidity Ratio:-
1.it refers to the relationship between Liquid assets and current liabilities of the bussiness.
2.FORMULA:- Liquid assets/current liabilities.
3.the ideal liquid ratio is 1:1.
1.it refers to the relastionship between current assets and current liabilities of the bussiness.
2.FORMULA:- Current assets/current liabilities.
3.the ideal current Ratio is 2:1.
Liquidity Ratio:-
1.it refers to the relationship between Liquid assets and current liabilities of the bussiness.
2.FORMULA:- Liquid assets/current liabilities.
3.the ideal liquid ratio is 1:1.
Community Answer
Difference between current ratio and liquidity ratio.?
Current Ratio vs. Liquidity Ratio
- Definition: Current ratio is a financial metric that measures a company's ability to pay off its short-term liabilities with its short-term assets. It is calculated by dividing current assets by current liabilities. Liquidity ratio, on the other hand, is a broader term that encompasses various ratios that assess a company's ability to meet its short-term obligations.
- Focus: Current ratio specifically looks at the relationship between current assets and current liabilities, providing a snapshot of a company's short-term liquidity. Liquidity ratio, on the other hand, encompasses a range of ratios that examine different aspects of a company's ability to meet its short-term financial obligations.
- Calculation: Current ratio is calculated by dividing current assets by current liabilities, while liquidity ratios can include ratios such as quick ratio, cash ratio, and working capital ratio, each with its own formula and focus.
- Interpretation: A current ratio above 1 indicates that a company has more current assets than current liabilities, suggesting that it can meet its short-term obligations. A liquidity ratio, depending on the specific ratio being used, may provide additional insights into a company's ability to handle short-term financial challenges.
- Usage: Current ratio is commonly used by investors, creditors, and analysts to assess a company's short-term financial health. Liquidity ratios, on the other hand, provide a more comprehensive view of a company's liquidity position and can be used to make more informed financial decisions.
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Difference between current ratio and liquidity ratio.?
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Difference between current ratio and liquidity ratio.? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Difference between current ratio and liquidity ratio.? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Difference between current ratio and liquidity ratio.?.
Difference between current ratio and liquidity ratio.? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Difference between current ratio and liquidity ratio.? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Difference between current ratio and liquidity ratio.?.
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