Liquidity

fluidity Liquidity is vital to the survival of a employment for in that location to be sufficient liquid resources available to meet maturing obligations. Liquidity refers to the ease with which assets corporation be converted to silver in the normal course of business. The latest ratio compares the liquid assets of a business with the on-going liabilities. The higher the ratio, the more liquid the business is considered to be. Some people seem to suggest there is an idol period ratio (usually 2:1) for all businesses however this fails to target into account the fact that different types of businesses require different current ratios. For example, a manufacturing business will often have a high current ratio because it is necessary to make water primitive materials and will normally sell goods on credit, thereby subject debtors. A supermarket chain, on the other hand, will have a low current ratio, as it will only hold fast-moving stock and will generate mostly cash gross revenue revenue. For Keith Alison, the current ratio fell significantly from 9.41 in 2006 to 3.09 in 2007. As liquidity is vital to the survival of a business, a higher current ratio is preferable to a put down one. The sexually transmitted disease test ratio is very similar to the current ratio, but it represents a more stringent test of liquidity.

It can be argued that, for many businesses, stock cannot be converted into cash quickly. The acid test ratio is a variation of the current ratio, but excluding stock because stock takes time to sell. Also, the inventory may be sold to debtors, who will often take at least a month to settle their debt. In this case, the acid test decreased from 6.59 in 2006 to 1.72 in 2007. The current assets cover version the current liabilities, so the business will not implement any liquidity problems for this period with regards to the ideal 2:1 ratio, but the rapid decline in this ratio should bring to steps being taken, at least, to stop further decline. The farm animal Turnover period measures the period for which stocks... If you want to get a full essay, order it on our website: Orderessay

If you want to get a full essay, wisit our page: write my essay .