3.3.3

Liquidity

Test yourself

Financial Ratios

The financial performance of a business can be assessed using financial ratios.

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Current ratio

  • The current ratio calculation allows a business to explore its liquidity by comparing current assets with current liabilities.
  • Current ratio can be calculated using:
    • Current assets ÷ current liabilities
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Acid Test ratio

  • The acid test ratio measures liquidity but discounts stock (inventories) which cannot quickly be turned into cash.
  • The acid test ratio can be calculated using:
    • (Current assets − stocks) ÷ current liabilities

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1Exploring Business

2Marketing Campaigns

3Business Finance

4International Business

5Principles of Management

6Business Decision Making

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