Introduction to Liquidity Ratios

in examining the liquidity ratios, the primary emphasis is the firm s This is a topic that many people are looking for. is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, would like to introduce to you Introduction to Liquidity Ratios. Following along are instructions in the video below:

” s get started with liquidity ratios how do we understand liquidity ratios first of all all what do you mean by liquidity to understand this i will show a small sheet here. But before that what is balance sheet balance sheet. Is a statement. Which will showcase the financial position of the business.

Now have a look at this band sheet balance sheet will traditionally have liability on one side assets on the other side this liability can be divided into two current liability and long term liability similarly assets. I can also be divided into two that is current asset and non current asset now let us focus only on this current liability and current assets. And when we say liquidity. It is actually with reference to these two items.


Only okay. That is liquidity is mainly influenced by position of your current liability. With reference to your current asset to put it clearly let s say this box is your total liability size and this is your total asset size and in this liability current liability occupies so much of portion out of total liability and we know liability means something which you have to pay and for paying that you need resources and resources are basically asserts and for meeting. This current liability.

You have to be dependent on current assets. And let s say current assets are only this much it means now you are in trouble. Why your current liability is more than your resources. That is you have to pay more.


But for paying more you have less current assets. It means. There is a region. Where you are actually going to be in trouble reason you have to pay more.

But you have less it means you are in danger zone. Actually you are not having resources to pay your current liabilities. So. We can say you have liquidity issue here.


Understand liquidity means ability to pay off your short term liabilities and short term expenses without difficulty here you have short term liability. But for paying the short term liability. You don t have adequate short term resources. Okay.

So liquidity ratios will help you to understand whether your business is having comfortable liquidity. Position or is it in serious liquidity. Trouble. So please understand.


And appreciate if a concern as having liquidity issue. It will be even more serious than reporting losses. Because some entities. Despite reporting good profit.

They land into serious trouble because of liquidity issues and you will be understanding them better once we take up each and every liquidity ratios in the following ” ..

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