Current Ratio : Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1
Formula:
Accounts receivable ratio: This ratio is mainly used to evaluate the collection process efficiency. It helps the company to know the number of times the accounts receivable is collected in a particular time period. Main purpose of accounts receivable turnover ratio is to manage theworking capital of the company.
Formula:
- Average collection period: Average collection period is used to determine the number of days a particular company takes to collect accounts receivables.
Formula:
- Inventory turnover ratio: Inventory turnover ratio is used to determine the number of times inventory used or sold during the particular accounting period.
Formula:
- Days’ sales in inventory: Days’ sales in inventory are used to determine number of days a particular company takes to make sales of the inventory available with them.
Formula:
To compute: Liquidity ratios
Given info: Items of current assets and current liabilities
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