The Online Liquidity Ratio Tools allows us to calculate precisely and accurately the measures of liquidity. This calculator will give solutions to the measures of the liquidity of a business or organization - current ratio, quick ratio, cash ratio, and working capital.

The liquidity ratio affects the credibility of an organization or company and also its credit ratings. If there are continuous defaults in repayment of a short-term liability then this will cause bankruptcy. That's why this ratio plays an important role in the financial stability of any company and its credit ratings.

To know how quickly an organization can convert its current assets into cash so that it can pay off its liability in a given time also you can boost your skills and knowledge about liquidity ratio easily with the help of the given module.

Liquidity is the ability of an organization to meet an expense or settle a due liability towards its stakeholders. Liquidity Ratios are required to measure liquidity. Using these ratios one can easily get the answers to the queries related to the current liquidity position of an entity.

**Current Ratio:**The current ratio measures the ability of a company to meet the short term obligations. It is the total of current assets divided by the total of current liabilities. The formula for calculating the Current Ratio is**Current Ratio = Current Assets ÷ Current Liabilities****Quick Ratio:**Quick Ratio determines the calculation of a company's ability to meet short-term obligations in a more conservative manner. The other name of the quick ratio is the acid-test ratio. It can e calculated using the formula:**Quick Ratio = (Current Assets - Inventory) ÷ Current Liabilities****Cash Ratio:**The Cash Ratio can be defined as the most conservative method to measure the abilities of a company to meet short term obligations. It can be easily calculated using the given formula:**Cash Ratio = (Cash + Cash Equivalents) ÷ Current Liabilities****Working Capital:**Working Capital shows the current assets a company has to work with. It can be calculated with the formula given below:**Working Capital = Current Assets - Current Liabilities**

**Current Assets**

Short-term assets that can be quickly converted into cash, either immediately or within twelve months, for the payment of the debt / current expenses.

**Current Liabilities**

Those liabilities that are due now or within the next year are known as Current Liabilities. Expenses that have been incurred in the current year include operation costs, supplies, and materials, loans coming due during the current year, etc.

**Inventory**

A company's items that it has purchased or produced and anticipates selling.

**Cash**

This includes actual cash on hand as well as money stored in bank accounts that is readily accessible.

**Cash Equivalents**

Investing in low-risk securities that mature within 3 months. A few examples include money market holdings, Treasury bills, preferred stocks acquired shortly before maturity, and certain types of bonds.

The process of calculating liquidity ratio is explained with the example by using the formulas of liquidity ratio. Learn the step-by-step process of manually calculating the Liquidity Ratio from here with an example.

In this fast-changing world, we want answers to all the lengthy calculations easily, check many more ratio calculators, and boost your math concepts with the help of arithmeticcalculator.com. Let us understand the concept of Liquidity Ratio calculation with the help of a solved example.

**Example: **

Calculate the Liquidity Ratio of a company using the several given particulars:

Sundry Debtors = 150,000 Inventories = 120,000 Cash-in-hand = 100,000 Bills Receivable = 200,000 Creditors = 500,000 Bank Overdraft = 50,000 |

**Solution:**

**Calculating, Current Ratio:**

Current Ratio = Current Assets ÷ Current Liabilities

The total current assets of a company can be calculated by adding Sundry Debtors, Inventories, Cash-in-hand, and Bills Receivable.

Current Assets = Sundry Debtors + Inventories + Cash-in-hand + Bills Receivable

Current Assets= 150,000 + 120,000+ 100,000+ 200,000= 570,000

Similarly, the total current liabilities can be calculated by adding Creditors and Bank Overdraft.

Current Liabilities = Creditors + Bank Overdraft

Current Liabilities = 500,000+ 50,000= 550,000

Hence, The Current Ratio becomes,

Current Ratio= 570,000 / 550,000 =** 1.03 :1.**

**Calculating, Quick Ratio:**

Quick Ratio = (Current Assets - Inventory) ÷ Current Liabilities

The Current Assets and Current Liabilities are already calculated above,

Current Assets=570,000

Inventories=120,000

Current Liabilities = 550,000

Hence, The Quick Ratio becomes,

Quick Ratio = ( 570,000-120,000) ÷ 550,000 = **0.81:1**

**Calculating, Cash Ratio:**

Cash Ratio = (Cash + Cash Equivalents) ÷ Current Liabilities

Given that,

Cash-in-hand = 100,000 and Current Liabilities = 550,000

Hence, The Cash Ratio becomes,

Cash Ratio = 100,000 ÷ 550,000 =** 0.18:1**

**Calculating, Working Capital:**

Working Capital = Current Assets - Current Liabilities

Current Assets=570,000 and Current Liabilities = 550,000

Hence, The Working Capital becomes,

Working Capital = 570,000- 500,000 = **70,000**

**1. What is a good ratio for liquidity?**

Precisely, a liquidity ratio is considered to be "good" if it is more than 1. In general, creditors and investors will look for an accounting liquidity ratio of approximately 2 or 3.

**2. What is the purpose of calculating the liquidity ratio?**

Liquidity ratios examine a company's ability to cover short-term debts and cash flows, while solvency ratios are for a longer-term ability to pay ongoing debts. So, it's useful for calculating the liquidity ratio of a company.

**3. Which liquidity ratio is most important?**

The cash ratio is the most important liquidity ratio of all.

**4. What is a "basic liquidity ratio"?**

Basic Liquidity Ratio = Cash or Cash Equivalents divided by monthly expenditures. The higher the digit, the more liquid the company's assets are.