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FINANCIAL STATEMENT ANALYSIS  LIQUIDITY RATIOS 


Financial Statement Analysis  Liquidity RatiosIn analyzing Financial Statements for the purpose of granting credit Ratios can be broadly classified into three categories. Liquidity Ratios:Liquidity Ratios are ratios that come off the the Balance Sheet and hence measure the liquidity of the company as on a particular day i.e the day that the Balance Sheet was prepared. These ratios are important in measuring the ability of a company to meet both its short term and long term obligations. FIRST LIQUIDITY RATIO
The formula: Current Ratio = Total Current Assets/ Total Current Liabilities An example from our Balance sheet:
The Interpretation:
Review the Industry Norms and Ratios for this ratio to compare and see if they are above below or equal to the others in the same industry. To use the Current Ratio Calculator Click here click here . SECOND LIQUIDITY RATIO
The formula: Quick Ratio = Total Quick Assets/ Total Current Liabilities Quick Assets = Total Current Assets (minus) Inventory An example from our Balance sheet:
The Interpretation:
Review the Industry Norms and Ratios for this ratio to compare and see if they are above below or equal to the others in the same industry. To use the Quick Ratio Calculator Click here click here . THIRD LIQUIDITY RATIO
The formula: Debt to Equity Ratio = Total Liabilities / Owners Equity or Net Worth An example from our Balance sheet:
The Interpretation:
To use the Debt to Equity Ratio Calculator Click here click here .


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