

Liquidity Measurement Ratios: Introduction
By Richard Loth (Contact  Biography)
The first ratios we'll take a look at in this tutorial are the liquidity ratios. Liquidity ratios attempt to measure a company's ability to pay off its shortterm debt obligations. This is done by comparing a company's most liquid assets (or, those that can be easily converted to cash), its shortterm liabilities.
In general, the greater the coverage of liquid assets to shortterm liabilities the better as it is a clear signal that a company can pay its debts that are coming due in the near future and still fund its ongoing operations. On the other hand, a company with a low coverage rate should raise a red flag for investors as it may be a sign that the company will have difficulty meeting running its operations, as well as meeting its obligations.
The biggest difference between each ratio is the type of assets used in the calculation. While each ratio includes current assets, the more conservative ratios will exclude some current assets as they aren't as easily converted to cash.
The ratios that we'll look at are the current, quick and cash ratios and we will also go over the cash conversion cycle, which goes into how the company turns its inventory into cash.
To find the data used in the examples in this section, please see the Securities and Exchange Commission's website to view the 2005 Annual Statement of Zimmer Holdings.
Liquidity Measurement Ratios: Current Ratio



Earnings Per Share  EPS
The portion of a company's profit allocated to each outstanding ... 
Return On Investment  ROI
A performance measure used to evaluate the efficiency of an investment ... 
Bid Wanted
An announcement by an investor who holds a security that he or ... 
Net Present Value  NPV
The difference between the present value of cash inflows and ... 
Total DebttoCapitalization Ratio
An indicator that measures the total amount of debt in a company’s ... 
PriceToCashFlow Ratio
The ratio of a stock’s price to its cash flow per share. The ...

Why do stock prices change following news reports?
Stock prices move up and down every minute due to fluctuations in supply and demand. If more people want to buy a particular ... 
What is the formula for calculating compound annual growth rate (CAGR) in Excel?
The concept of CAGR is relatively straightforward and requires only three primary inputs: an investments beginning value, ... 
How do I calculate the adjusted closing price for a stock?
When trading is done for the day on a recognized exchange, all stocks are priced at close. The price that is quoted at the ... 
How do I find historical prices for stocks?
Whether for research purposes, bookkeeping or even general interest in historical performance, this is a question that many ...