The value of money received today is more than the value of money received tomorrow.

An example of a liquidity ratio is the current ratio. The quick ratio is an indicator of a company’s short-term liquidity position and measures a company’s ability to meet its short-term … It is very important for management to control the liquidity problem in the entity. It is a better technique of decision making the then-current ratio of the company. Also known as the quick ratio, the acid-test ratio is a liquidity ratio that measures a company's ability to pay its current liabilities with its quick or current assets. A basic measure of a firm’s liquidity, the quick ratio measures all of the firm’s assets (cash and otherwise) that could be used almost immediately to pay off debts relative to the firm’s short term liabilities. The group of these ratios is the Current Ratio, Quick Ratio, Cash Ratio, Working Capital Ratio, and Time Interest-Earning Ratio. It previews the ability of the company to make settlement its quick liabilities in a very short notice period. The working capital ratio subtracts current assets from current liabilities. The quick ratio is very useful in measuring the liquidity position of a firm. The following formula is used to calculate weighted current ratio. Why is it important? Businesses should always keep their quick ratio properly managed. A liquidity ratio – a useful indication of a company’s ability to manage short-term obligations – provides important information about business strength. The quick ratio compares only the most liquid assets – cash and accounts receivable – to current liabilities. The general point of the quick ratio and other liquidity ratios is to show your company's near-term financial security. Liquidity Ratio normally focuses on the group of ratios that measure how the company’s assets could handle its current liabilities. The Importance of Quick ratio This ratio is one of the major tools for decision-making. Formula to calculate weighted current ratio. The quick ratio is very conservative and helps to find the exact liquidity of the company. They fall into many categories and if variations are included there are hundreds of types of ratios that are common in practice.

This is a guide to the importance of ratio analysis. The quick ratio is a ratio calculated to handle the defects that are present in Current Ratio.The acid-test ratio is a more progressive form of an alternate well-known liquidity metric – the current ratio. A liquidity ratio – a useful indication of a company’s ability to manage short-term obligations – provides important information about business strength. Understanding Quick Ratio or Acid Test Ratio. An example of a liquidity ratio is the current ratio. Importance of Quick Ratio. Debt Service Coverage Ratio, and; Quick Ratio. Importance of Different Ratios to Different User Groups As we have seen earlier that there is a wide variety of financial ratios available. It is majorly used by creditors and lenders to evaluate an entity’s creditworthiness and timely payments before approving their application for the loan.

Importance and Uses of Ratio Analysis.

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