Definitions and terms used in Liquidity Ratios Analysis
- Refers to money in the physical form of currency. Cash includes money in the cash pan, petty cash, cash in the locker, bank account and customers’ checks.
- Marketable Securities
- A near-cash (liquid) assets in the form of equity or debt instrument (share/stock, bond or note) that are listed on an exchange and can be readily bought or sold.
- Accounts Receivable
- Money owed to a company by customers (individuals or corporations) for goods or services that have been delivered or used, but not yet paid for. In it is also known as Sales on credit.
- Current Assets
- The assets that are expected to be converted into cash or otherwise used up within a year or one business cycle (whichever is longer). Typical current assets include cash and cash equivalents, accounts receivable, inventory, marketable securities, the portion of prepaid expenses which will be used within a year and other assets that could be converted to cash in less than one year.
- Current Assets = Cash + Bank + Accounts Receivable + Marketable Securities + Inventory + Prepaid Expenses
- Current Liabilities (short term debt)
- Obligations or debts that are due within one fiscal year or the operating cycle. For example, accounts payable, accrued liabilities, dividends, unpaid taxes and other debts that are due within one year.