|Written by Sunil Tinani| There are three broadly used liquidity
ratios: (i) working capital; (ii) current ratio; and (iii) quick
(acid) ratio. 1. Working Capital Working Capital = Current
Assets – Current Liabilities This simple calculation can help
the investor figure out if a company can meet its current
business commitments. Current assets are assets that can be
quickly converted into cash and current liabilities are
liabilities that have to be repaid within a short span of time.
If a company's current assets exceeds its liabilities, then it
can meet its obligations in time; if its current assets equal
its current liabilities, then its working capital is zero; if
its current liabilities exceeds its current assets, then the
company may have to look for funds to meet its current
commitments – otherwise it may get into trouble. Thus, working
capital reflects a company's immediate liquidity position. 2.
Current Ratio Current Ratio = Current Assets ÷ Current
Liabilities Current ratio is an extension of the wor