# Liquidity ratios

- — Acid-Test Ratio
- — Cash Ratio
- — Current Ratio
- — Net Working Capital
- — Quick Ratio
- — Working Capital
- — Working Capital Ratio (WCR)

## Acid-Test Ratio

The term “**Acid-test ratio**” is also known as **quick ratio**. The most basic definition of acid-test ratio is that, “it measures current (short term) liquidity and position of the company”. To do the analysis accountants weight current assets of the company against the current liabilities which result in the ratio that highlights the liquidity of the company.

## Cash Ratio

**Cash ratio **(also called **cash asset ratio**)** **isthe ratio of a company's cash and cash equivalent assets to its current liabilities. Cash ratio is a refinement of quick ratio and indicates the extent to which readily available funds can pay off current liabilities. Potential creditors use this ratio as a measure of a company's liquidity and how easily it can service debt and cover short-term liabilities.

## Current Ratio

**Current ratio** is a balance sheet financial performance measure of a company's liquidity. The current ratio indicates a company's ability to meet short-term debt obligations. The current ratio measures whether or not a company has enough resources to pay its debts over the next 12 months.

## Quick Ratio

**The quick ratio is a** measure of a company's ability to meet its short-term obligations using its most liquid assets (near cash or quick assets). Quick assets include those current assets that presumably can be quickly converted to cash at close to their book values. Quick ratio is viewed as a sign of a company's financial strength or weakness; it gives information about a company’s short term liquidity. The ratio tells creditors how much of the company's short term debt can be met by selling all the company's liquid assets at very short notice.

## Working Capital

**Working capital **is the amount by which the value of a company's current assets exceeds its current liabilities. Also called **net working capital**. Sometimes the term "working capital" is used as synonym for "current assets" but more frequently as "net working capital", i.e. the amount of current assets that is in excess of current liabilities. Working capital is frequently used to measure a firm's ability to meet current obligations. It measures how much in liquid assets a company has available to build its business.

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