Liquidity Financial Ratio Review Exercise Essay

1. Liquidity ratios are a class of financial metrics that is used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts.

The liquidity of firm can be measured by computing certain ratio’s such as current ratio and acid ratio. For measuring Target Corporation’s 2014 liquidity; the firm’s current ratio and the acid ratio is computed. The company’s current ratio is 0.91 times which is computed by comparing current asset ($11, 573,000) with current liabilities ($12,777, 000) of the year 2014 (TGT Company Financial, n.d). The firm’s acid ratio is 0.26 times which is computed by deducting inventory ($8,278,000) from current assets. The inventory is deducted from current assets because the company has not received any money for the unfinished good or from unsold inventory worth ($8,278,000). To analyze the Target Corporation’s liquidity trend in 2014; the current ratio and acid ratio of 2014 is compared with the 2015’s ratios. In 2015, the firm’s current ratio was 1.20 times and the acid ratio was 0.45 times. These liquidity ratios reflect that the firm’s liquidity was better in 2015 than 2014. (See Table 1).

Liquidity ratios measure the company’s ability to meet its maturing short-term obligations. In other words, can a company quickly convert its current assets to cash to meet its short-term obligations? Therefore, Liquidity ratios are very significant to investors and creditors since it helps them to identify how easily company will be able to pay off

Financial ratios are important for analyzing the liquidity and profitability of the company. Based on the 2010 income statement and balance sheet for Riordan Manufacturing the following ratios have been calculated. First, the liquidity ratios tell the proportion of liquid assets to as they relate to current liabilities. These ratios are important because they can show how vulnerable a company is to bankruptcy or insolvency. Next,

The financial condition of an organization represents the strategy and structure. However, the use of ratios an individual can assess a company’s abilities to function and grow in an highly competitive market. The ratios and financial statement can be complex, however, financial performance of the organization can be acquired with the execution of performing these ratios from the balance sheets and statements. Most common groups to perform these anglicizes are profit ratios, liquidity ratios, activity ratios, leverage ratios, and shareholder-return ratios. With evaluating the organizations performance, these ratios are compared to the industry average over the history of the firm. When these calculation and ration reveal a deviation

Liquidity ratios measure the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash.

The liquidity ratios of the firm are slightly below the industry averages. This is due to inventory and accounts receivable making up a significantly larger portion of the current assets than cash and marketable securities. This may be indicative of a problem with inventory management and/or collection on accounts.

Liquidity ratios measure a company’s capability in achieving their short-term financial debts, for example current assets ratio and quick ratio. (Campbell R.Harvey, 2004b)

Basically the liquidity ratios are used to determine a company’s ability to cover its short term obligations when are in financial distress and these obligations are due.

Mark X Company is a manufacturer of farm and specialty tailors. Over 85% of sales come from the western part of the

The liquidity position of a company can be evaluated using several ratios which evaluate short-term assets and liabilities and a firm’s ability to settle short-term debts (Gibson, 2011). These ratios can provide insight into a firm’s ability to repay its debts in the short term (Gibson, 2011). In turn they suggest a firm’s capacity for debt-satisfying capabilities into the future (Gibson, 2011). This paper will use financial statement data as cited in Gibson (2011) from 3M Company (3M) to better understand liquidity measures to evaluate a firm’s total liquidity position. The following paper will focus on various liquidity calculations, their meaning, and their interpretation relative to 3M. Finally, an overall view of 3M’s liquidity

Liquidity ratios. They are used to determine whether an organization is capable of paying off its immediate debt responsibilities. The value of the ratio is used to determine the margin of well-being in possession of the health organizations to pay off the short- term debts. The financial health of these organizations can be strongly demonstrated using these ratios. The liquidity ratios are explained below.

As an investor when analyzing an organization’s finances, liquidity, solvency, profitability and market ratios can provide a snapshot of the overall health of the business, when making investment decisions. While, perusing a few of American Airlines ratios as compared to its competitors, they were few ratio’s that was

Financial ratios have proven to be a useful tool for effective financial management and planning. Primarily known for improving the understanding of financial results and trends over time, financial ratios are a unique way to provide a quantitative analysis to communicate overall organizational performance. This tool is useful for managers to focus in on the company’s strengths and weaknesses from which strategies and operations can be formed. Investors are also commonly known to use ratios to measure results against other companies to make appropriate judgments regarding management effectiveness and mission impact. For ratios to be deemed meaningful and useful, they require reliable and accurate calculated information. This is simple

Financial Ratio Analysis is important for a company to use because it helps the business learn more about their company’s current financial health. There are different types of ratios that a company can perform to provide them the information from their financial statements. One of the common ratios used is to see the company’s liquidity. A liquidity ratio would help measure the company’s ability to cover their expenses. These ratios are both based off information provided from the balance sheet. The two most commonly used liquidity ratios companies use is the current ratio and quick ratio.