Sales to Working Capital

Sales to Working Capital

            Sales to working capital ratio shows the relationship between net sales and working capital, it also indicate that how the company is generating revenue by using its working capital.

Quick ratio / acid test ratio

Quick ratio / acid test ratio  

         Quick ratio is also known as “Acid Test Ratio”. We calculate this ratio by excluding stock in trade (inventory) from current assets and then divide by Current liabilities. Normal ratio is 1:1. Quick ratio measure the immediate liquidity, it states more pure liquidity position of a business concerned. It measures the firm’s ability to pay-off its short term obligation immediately.

CURRENT RATIO.

CURRENT RATIO.

            Current Ratio is equal to Current Assets divided by current liabilities. This ratio shows a business ability to cover its short term liabilities out of its current assets. Higher current ratio shows that business has sufficient resources to pay its current obligations. Normally Current assets are consists of Stores, spare and loose tools, inventory, Trade Debts, Advances, deposits, prepayment, Cash and cash equivalent. Current liabilities includes Trade and other payable, markup accrued, accrued expenses, short term borrowing, current portion of long term liabilities.

Current Ratio =	Current Assets
	Current Liabilities

Liquidity Ratios

Liquidity Ratios

            Liquidity ratios are very useful in measuring the ability of a firm to meets its short term obligation out of current assets which are readily convertible to cash. In these ratios current assets are compared with current liabilities whether they are sufficient to meets its current obligations.