ACCOUNTING RATIOS Topic Current Ratio and Quick Ratio

ACCOUNTING RATIOS Topic - Current Ratio and Quick Ratio Class XII Subject Accountancy

RATIO ANALYSIS Ratio analysis is a study of relationship among various financial factors in We have two firms here. To know who performed better, we need both the fa net sales) and study their relationship through ratios. Firm A • Firm B • • So from the above example, we understand that despite earning more profit than firm A, we cannot conclude that firm B has

Types of Ratios 1. LIQUIDITY RATIOS: : these ratios show the ability of th meet its short term financial obligations like payment creditors, payment of its outstanding bills or expenses e be further divided into a) Current Ratio and b) Quick Ratio

2. SOLVENCY RATIO: these are calculated to assess long-term financial position of the firm. Solvency refers to the form’s ability to meet its long-term financial obligations like payback of bank loans, payment of interests on loans and borrowings etc. They are divided further into: (a) Debt to Equity ratio; (b) Total Assets to Debt Ratio; (c) Proprietory Ratio; (d) Interest Coverage Ratio

3. ACTIVITY /TURNOVER RATIOS: this ratio tells us how the firm is utilizing its resources. It is further divided into (a) inventory Turnover Ratio (b) Trade Receivable turnove Trade Payables Turnover Ratio (d) Working Capital Turno 4. PROFTABILITY RATIOS: these ratios measure the pro the firm i. e. to check if the firm is earning enough profits as costs incurred. These ratios are (a) Gross Profit Ratio; (b) Operating Profit Ratio; (c) Opera

Current Ratio •

2. QUICK/LIQUID RATIO •