Liquidity Ratios Calculator

How the Calculator Works:

This Liquidity Ratios Calculator allows you to calculate key financial metrics that assess the ability of a business to meet its short-term obligations using its current assets and liabilities.

1. Input Fields:

   • Current Assets (A, B): Total assets that are expected to be converted into cash within one year.
   • Current Liabilities (A, B): Total liabilities that need to be paid within the same period.
   • Inventory (A, B): Stock that a company holds for sale.
   • Cash (A, B): Liquid assets readily available for use.
   • Cash Equivalents (A, B): Near-cash items like treasury bills and other highly liquid assets.

2. Output Fields:

   • Current Ratio: Measures the company’s ability to cover its current liabilities with its current assets.
   • Quick Ratio: A more stringent liquidity measure that excludes inventory from the current assets.
   • Cash Ratio: Measures the company’s ability to cover liabilities using only cash and cash equivalents.
   • Working Capital: Represents the difference between current assets and current liabilities.

3. Change: For each ratio, the calculator compares values in columns A and B and computes the percentage change. A positive change indicates an increase, while a negative change indicates a decrease.

Example Calculation:

Input:

• Current Assets (A): $6,000, Current Assets (B): $2,000
• Current Liabilities (A): $5,000, Current Liabilities (B): $7,000
• Inventory (A): $3,000, Inventory (B): $3,000
• Cash (A): $2,000, Cash (B): $4,000
• Cash Equivalents (A): $6,000, Cash Equivalents (B): $7,000

Results:

1. Current Ratio:

   $$\text{Current Ratio A}=\frac{6,000}{5,000}=1.2$$$$\text{Current Ratio B}=\frac{2,000}{7,000}=0.286$$

   Percentage Change:

   $$\text{Change}=\frac{0.286-1.2}{1.2}\times 100=-76.17\mathrm{\%}(\text{decrease})$$

2. Quick Ratio:

   $$\text{Quick Ratio A}=\frac{6,000-3,000}{5,000}=0.6$$$$\text{Quick Ratio B}=\frac{2,000-3,000}{7,000}=-0.143$$

   Percentage Change:

   $$\text{Change}=\frac{-0.143-0.6}{0.6}\times 100=-123.8\mathrm{\%}(\text{decrease})$$

3. Cash Ratio:

   $$\text{Cash Ratio A}=\frac{2,000+6,000}{5,000}=1.6$$$$\text{Cash Ratio B}=\frac{4,000+7,000}{7,000}=1.571$$

   Percentage Change:

   $$\text{Change}=\frac{1.571-1.6}{1.6}\times 100=-1.875\mathrm{\%}(\text{decrease})$$

4. Working Capital:

   $$\text{Working Capital A}=6,000-5,000=1,000$$$$\text{Working Capital B}=2,000-7,000=-5,000$$

   Percentage Change:

   $$\text{Change}=\frac{-5,000-1,000}{1,000}\times 100=-600\mathrm{\%}(\text{decrease})$$

Formulas Used:

1. Current Ratio:

   $$\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}$$

2. Quick Ratio (also known as Acid-Test Ratio):

   $$\text{Quick Ratio} = \frac{\text{Current Assets} – \text{Inventory}}{\text{Current Liabilities}}$$

3. Cash Ratio:

   $$\text{Cash Ratio} = \frac{\text{Cash} + \text{Cash Equivalents}}{\text{Current Liabilities}}$$

4. Working Capital:

   $$\text{Working Capital}=\text{Current Assets}-\text{Current Liabilities}$$