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Submitted By nalqatta

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Words 1226

Pages 5

LIQUIDITY AND ACTIVIY

Current Ratio measures the ability of a firm to pay its short-term debts. The formula is:

|Current Ratio |= |Current Assets |

| | |Current Liabilities |

Quick (Acid-Test) Ratio measures the immediate ability of a firm to pay its short-term debts. The formula is:

|Current Ratio |= |Cash + Marketable Securities + Current Receivables |

| | |Current Liabilities |

Accruals ratio measures the amount of accounts receivables to cover the accounts payable. The formula is:

|Accruals Ratio |= |Accounts Receivables |

| | |Accounts Payables |

Cash Flow Yield measures ability to generate operating cash flows in relation to NI (the most important liquidity ratio). The formula is:

|Cash Flow Yield |= |Net cash provided by |

| | |operating activities |

| | |NI |

Cash Ratio measures short-term liquidity in the strictest sense. The formula is:

|Cash Ratio |= |Cash + Marketable Securities...

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