Module 7 : Interpretation and Analysis of Accounts
Lecture 2 : Ratio Analysis
 
  1. Liquidity Ratios:

    ii. Quick Ratio / Acid Test Ratio   =      Quick Asset      
    Quick Liabilities    		  
     
     

    Quick Asset = CAs - Inventories
      Quick Liabilities = CLs - Bank Ovdraft
     
    • The quick ratio is a much more conservative measure than current ratio.
    • This ratio measure the immediate solvency of the company.
    • The ideal liquid ratio is 1:1. This is irrespective of nature of business.


  2. Capital Structure/Leverage Ratios:

    These ratios indicate the mix of funds provided by owners and lenders. Leverage ratios are of two types
    1. Capital Structure ratios.
    2. Coverage ratios.