Current ratio: measure shore-term liquidity higher is better ( in some cases) : * healthy indication for performance of company because It shows the company commitment and ability in meeting up short-term obligation (it suggests that the business has enough cash to be able to pay its debts). * If current liabilities exceed current assets (the current ratio is below 1), then the company may have problems meeting its short-term obligations * If the current ratio is too high, then the company may not be efficiently using its current assets or its short-term financing facilities. This may also indicate problems in working capital management.
Quick ratio: specifies whether the assets that can be quickly converted into cash are sufficient to cover current liabilities * High quick ratio: company may keep too much cash on hand or have a problem collecting its accounts receivable (too high) OR because It shows the company commitment and ability in meeting up short-term obligation * Low: company relies too much on inventory or other assets to pay its short-term liabilities
Inventory turnover and day’s sales in inventory: * Low inventory turnover ratio is a signal of inefficiency. It also implies either poor sales or excess inventory; indicate poor liquidity, possible overstocking, and obsolescence, * High inventory turnover ratio implies either company sale is doing very fast strong * High inventory levels are usual unhealthy indicates firm have poor inventory management or lowering the price of sale.
Receivables turnover and day’s sale in receivables: collect back the debts * Higher days mean indicate that your business needs to improve its credit policies and collection procedures because it’s not good in handling receivable account. Managers need to back up their system of collecting back their money from customers (extend credit