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Fundamental Analysis @ Liquidity Ratios Liquidity Ratios measure the ability of a firm to meet its short term obligations and reflect the short term financial strength/solvency of a firm. Current Ratio Current assets Current Ratio = Current Liability It is a measure of liquidity calculated by dividing current assets by the current liability. Acid Test Ratio Quick Assets Acid test Ratio = Current Liability It’s a measure of firms ability to convert its current assets quickly into cash in order to meet its current liability. Turnover Ratio Cost Of goods sold Inventory Turnover Ratio = Average Inventory This ratio indicates how Inventory is sold. A high ratio is good from the view point of liquidity . A low ratio would signify that inventory dose not sell of fast and stay is warehouse for long. www.stocktradingfundamentals.com Fundamental Analysis @ Liquidity Ratios Debtors Turnover Ratio Net Credit Sales Debtors Turnover Ratio = Average account Receivable It measure how rapidly receivables are collected. It supplements the information regarding the liquidity of one item of current assets of the firm. Fixed Asset Turnover Ratio Net Sales Fixed Asset Turnover Ratio = Net fixed assets This ratio gives a indication on how efficiently a firm employs its fixed assets. Total Asset Turnover Ratio Cost Of goods sold Inventory Turnover Ratio = Average Inventory This ratio indicates how efficiently management uses total assets to generate sales. www.stocktradingfundamentals.com