As with most Excel financial ratios, liquidity ratio calculations require at least two data points from outside financial sources followed by a short Excel formula. There are several different liquidity ratios; each of them is used to demonstrate a company's ability to pay off short-term debt obligations. The two most common liquidity ratios are the current ratio and the quick ratio.
To calculate the current ratio, find the company's current assets and current liabilities by looking at its most recent balance sheet. Pick two consecutive cells within a column, such as A2 and A3, and title them "Assets" and "Liabilities" respectively. Immediately adjacent to those cells, in B2 and B3, enter the corresponding figures from the balance sheet. The calculation for the current ratio is performed in a separate cell using the following formula: = (B2 / B3).
A company's current ratio highlights how efficiently products can be turned into cash and is a critical figure when evaluating corporate governance. However, be wary of comparing current ratios across industries since operating cycles can vary dramatically.
The quick ratio is very similar to the current ratio and can be calculated by just adding one additional step to the current ratio. This time, import a third variable from the company's balance sheet: inventories. Using the same cell setup as before with the assets figure in B2 and the liabilities figure in B3, add the figure for inventories in cell B4. Now, in the cell where the prior calculation for current ratio was performed, modify the formula to read: = (B2 - B4) / B3.
The quick ratio provides an even shorter-term perspective on solvency by only taking into account the most liquid assets. Since inventory can take some time to turn into cash assets, some believe this is a more realistic view.