This glossary uses Visual Finance™ to bring financial terms to life. Each example shows data from the Round Number Company, a fictional business with simplified figures to make learning easier. For more details, visit 'How to Read Visual Finance'.
Liquidity Ratios answer the question: "How well can the firm pay its liabilities that are coming due?" They measure the ability of a firm to meet Short-term financial obligations.
Current Ratio (Working Capital Ratio): Compares Current Assets to Current Liabilities.
Acid-Test Ratio (Quick Ratio): Compares the ‘most liquid’ Current Assets to Current Liabilities. The most liquid assets are Cash, Receivables and Short-term Investments.
Cash Ratio: Compares Cash to Current Liabilities. This is a “conservative” ratio because it counts only cash as liquid.
|
Calculator for Current Ratio
Calculator for Cash Ratio
|
The above is our generic explanations of common corporate financial terminology. Actual meanings can vary widely from company to company; in order to have the correct internal definition you need to ask your Finance Department, "What do you mean by that?"
term list.