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The following ratios are commonly used to assess a company’s liquidity. While each ratio reveals information on its own, using the ratios in tandem provides a much richer understanding of liquidity. Note that each ratio focuses on some aspect of either current liabilities or current assets.
Liquidity Ratio Relationship
Current Ratio Current Assets / Current Liabilities
Quick Ratio Cash-like Assets/Current Liabilities
Receivables Turnover Ratio Sales /Accounts Receivable
Inventory Turnover Ratio Cost of Goods Sold/ Inventory
Choose a company to evaluate. Select three of the ratios shown above and calculate the performance being sure to include the components of the formula.
Provide a clear discussion of what the results tell you about the financial health of the organization. Were you aware of the company’s performance in these areas?
Explain three facts that you learned about the company.
The final paragraph (three or four sentences) of your initial post should summarize the one or two key points that you are making in your initial response. Your main post must be two to three substantive paragraphs 150-200 total words and include at least two APA-formatted citations/references.
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