Quick Ratio - Formula

Quick Ratio Formula:

Formula for Quick Ratio

Meaning:

Quick Ratio is the second important liquidity ratio that measures the organisation’s ability to meet immediate obligations on a much stringent method. Here inventories which are slower to realise or convert into cash are eliminated from the current assets.

Example:

Example-Calculation of Quick Ratio of NMDC Ltd.

Desired Number:

The minimum required number for safety is 1. Below one means inadequate safety and any number more than one indicates increased margin of safety.

Current Ratio - Formula

Current Ratio Formula:

Formula for Calculation of Current Ratio

Meaning:

Current Ratio is the ratio or proportion between current assets and current liabilities. Current assets mean assets that can be expected to get converted into cash within a year and current liabilities are those that mature within 12 months. It is a measure of the business’s liquidity or the ability to meet short-term obligations.

Desirable Number:

Current ratio of two is minimum stipulated. Any number above means additional safety. A number below 2 indicates weakness.

Example:

Here we present the example of calculating the current ratio of NMDC Ltd., as per the balance sheet on 31st March 2015.

Example Showing Current Ratio Calculation of NMDC Ltd.