Tips on Balance Sheet and Financial Ratios Research

Financial Ratios: Liquidity Measures

These financial ratios are generally understood as measures of firm and industry liquidity: All ratios are derived from balance sheet data.

1. Quick Ratio
(Cash + Accounts Receivable)/ Current Liabilities

The Quick Ratio indicates liquid assets available to cover current debt. It is also known as the Acid Ratio. This is a “harsher” version of the Current Ratio, which balances short-term liabilities against cash and liquid instruments. Generally, any value of less than 1 to 1 suggests an over-reliance on inventory or other current assets to pay off short-term debt