Liquidity ratio

1. BY:
JYOTSNA KUMARI
REG NO: 1261333028

2. LIQUIDITY RATIO
Liquidityratiosaretheratiosthatmeasuretheabilityofacompanytomeetits
shorttermdebtobligations.Theseratiosmeasuretheabilityofacompanyto
payoffitsshort-termliabilitieswhentheyfalldue.
Theliquidityratiosarearesultofdividingcashandotherliquidassetsbythe
shorttermborrowings&currentliabilities.
Theratiosunderliquidityratioare:
Currentratio
Quickratio
Absoluteliquidratio
Inventorytoworkingcapitalratio

3. CURRENT RATIO
Anindicationofacompany'sabilitytomeetshort-termdebtobligations.
Highertheratiothemoreliquidthecompanyis.
Ifcurrentassetsaremorethantwiceofthecurrentliabilitiesthenitis
consideredtohavegoodshorttermfinancialstrengthandifcurrentliabilities
exceedcurrentassetsthencompanymayhaveproblemtomeetitsshortterm
obligations.
Formula:
Currentratio=Currentassets/Currentliabilities

4. Year Current
Assets
Current
Liabilities
Current ratio
2011 1333.03 2216.96 0.601
2010 1094.70 1751.61 0.624
2009 903.36 1501.18 0.601
2008 836.86 1259.75 0.664
2007 678.69 1027.31 0.660

5. GRAPHICAL
REPRESENTATION0.56
0.58
0.6
0.62
0.64
0.66
0.68
20112010200920082007
current ratio
current ratio

6. INTERPRETATION
Tomeasurewhetherornotacompanyhasenoughresourcestopayitsdebt
overthenextbusinesscycle,IhavecalculatedtheCurrentRatio,whichshowsa
fluctuatingtrendof0.60in2011then0.62in2010andfinallyaslowdownfrom
0.66in2008to0.60in2009.Thoughthegeneralruleisacompanyshouldhave
neithermorenorlessliquidityratheracompanyshouldalwayshavesufficient
liquidityandasweknowthattheThumbRuleis2:1butthecalculatedCurrent
Ratiosshowanin-sufficientliquidity.

7. QUICK RATIO
Measureofacompany'sliquidityandabilitytomeetitsobligations.
Alsoreferredtoasacid-testratioandLiquidAssetratio.
Liquidassetmeansallcurrentassetexceptclosingstockandprepaidexpenses.
Formula:quickratio=liquidassets/currentliabilities.

8. Year Liquid AssetsCurrent
Liabilities
Quick ratio
2011 598.99 2216.96 0.270
2010 518.75 1751.61 0.296
2009 404.62 1501.18 0.269
2008 401.95 1259.75 0.319
2007 277.47 1027.31 0c.270

9. GRAPHICAL
REPRESENTATION0.24
0.25
0.26
0.27
0.28
0.29
0.3
0.31
0.32
0.33
2011 2010 2009 2008 2007
quick ratio
quick ratio

10. INTERPRETATION
WehavealsocalculatedQuickRatiostoshowafluctuatingtrendandadecline
attheendoftheyear2011.Though,thethumbruleisthatcompanieswitha
quickratioofgreaterthan1.0aresufficientlyabletomeettheirshort-term
liabilitiesbutherethecompanyhaslowQuickRatioindicatingthecompany’s
liquiditypositionisnotgoodenough

11. ABSOLUTE LIQUID RATIO
In addition to computing current and quick ratio, some analysts also
computeabsolute liquid ratioto test the liquidity of the business.
Absolute liquid ratio is computed by dividing the absolute liquid assets by
current liabilities.
Formula: absolute liquid ratio = absolute liquid assets/current
liabilities.

12. Year Absolute Liquid
Assets
Current
Liabilities
Absolute Liquid
ratio
2011 227.21 2216.96 0.1024
2010 255.29 1751.61 0.1457
2009 155.59 1501.18 0.1036
2008 193.69 1259.75 0.1537
2007 37.76 1027.31 0.0367

13. GRAPHICAL
REPRESENTATION0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
0.18
20112010200920082007
absl. Liquid ratio
absl. Liquid ratio

14. INTERPRETATION
Tocheckwhethertheliquiditypositionofthecompanyisgoodornotwe
havealsocalculatedabsoluteliquidratioandaswecanseeineveryyear
theabsoluteliquidratioislowerthanthethumbrulethatis1:2,sothe
company’sliquiditypositionisn’tgood.

15. INVENTORY TO WORKING CAPITAL RATIO
Working capital is known as excess of current assets over current
liabilities.
Formula: Inventory to working capital ratio =Inventory/working capital

16. INVENTORY TO WORKING CAPITAL RATIO
YEAR InventoryWorking capital Inventory to working capital ratio
2011 734.04 -883.93 -83.04277488
2010 575.95 -656.91 -87.67563289
2009 498.74 -597.82 -83.42644943
2008 434.91 -422.82 -102.8593728
2007 401.22 -348.61 -115.0913628

17. -140
-120
-100
-80
-60
-40
-20
0
20112010200920082007
Inventory to working capital ratio
inventory to w.c
ratio

18. INTERPRETATION
The company total liabilities is greater than the total assets.
So the working capital we are getting is in negative terms.
So the organisations performance is not good due to the lesser assets.

19. FINDINGS
In current ratio, we have to find out current asets and
the current liabilities. In 2008, it is the highest as
compared to other years. But it remains same in 2009
and 2011.
In quick ratio, we have to find out liquid assets and
current liabilities. In 2008, it is highest as compared to
other years . But it is lowest in 2007 and the ratio is
showing average in 2009, 2010 and 2011

20. Cont……
In absolute liquid ratio, we need to find out theabsolute
liquid assets and current liabilities.
In 2008 , it is highest as compared to the other years.
It is average in 2011,2010,2009 and lowest in 2007
In inventory to working capital ratio, we need to find out
the working capital which requires current assets value and
current liabilities value.
and inventory or closing stock.
As, current liabilities exceeds current assets, so it is showing
negative terms in all years.