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Monday, March 28, 2011

Liquidity Ratio Analysis & Example

Definition: Liquidity ratios provide a general estimate of solvency of a company.

List of common liquidity ratios and formulas:

1) Current ratio (also known as working capital ratio)
    = Current Assets / Current Liabilities
2) Quick ratio, in times (also known as acid test ratio or quick assets ratio)
    = (Current Assets - Stock) / Current Liabilities
3) Interest Coverage = Profit Before


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