The liquidity ratios presented in this thesis paper are 1 Quick ratio 2 Current

# The liquidity ratios presented in this thesis paper

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explains the concept of immediate liquidity (Salmi 2004). The liquidity ratios presented in this thesis paper are: 1) Quick ratio 2) Current ratio 3) Working capital -% 4) Accounts receivable turnover days 5) Accounts payable turnover days Quick ratio The quick ratio indicates the liquidity for shorter period time than the current ratio. This ratio is sometimes also called "acid test." Quick ratio measures the company's liquidity more strict than the current ratio in the light of the fact that inventories have been eliminated in this equation since they might not be realizable very fast (Niskanen, Niskanen 2003) Quick ratio measures the amount of current assets in relation to current liabilities. In case current assets can cover the current liabilities, we can say that the liquidity is good. The less company have current assets compared to current liabilities, the more critical liquidity company has (Leppiniemi, Kyykkänen 2013). The formula for calculating quick ratio is quite simple and as it follows: ࠵?࠵?࠵?࠵?࠵? ࠵?࠵?࠵?࠵?࠵? = ࠵?࠵?࠵?࠵?࠵? ࠵?࠵?࠵?࠵?࠵?࠵?࠵? ࠵?࠵?࠵?࠵?࠵?࠵?࠵? ࠵?࠵?࠵?࠵?࠵?࠵?࠵?࠵?࠵?࠵?࠵? ࠵? ࠵?࠵?࠵? ࠵?࠵?࠵?࠵? ࠵?࠵?࠵?࠵?࠵? = ࠵?࠵?࠵?࠵?࠵?࠵?࠵? ࠵?࠵?࠵?࠵?࠵?࠵?࠵?࠵?࠵? ࠵?࠵?࠵?࠵?࠵?࠵? ࠵? ࠵?࠵?࠵? ࠵?࠵?࠵?࠵? ࠵?࠵?࠵?࠵?࠵? Figure 6. Quick ratio Source: Niskanen, Niskanen (2007, 61) Generally accepted and provided guidelines results for quick ratio are as follows:
22 Table 4. Quick ratio guidelines Quick ratio Valuation Over 1 good 0,5-1 satisfying Under 0,5 weak Source: Leppiniemi, Kyykkänen (2013, 171) Current ratio The current ratio is widely used in estimation the company's ability to pay short-term debts and liquidity. Also, the current ratio is based on the balance sheet like quick ratio, however current ratio investigates the liquidity while taking into account the whole net working capital. In other words, while calculating the current ratio, one must include inventories to calculation as a positive figure. Current ratio can be considered to be a more reliable figure than net working capital-% due to its nature. For example, it is possible that even though two different companies have the exact same amount of net working capital, the current ratios might differ from each other greatly (Niskanen, Niskanen 2003). The current ratio is calculated as follows: ࠵?࠵?࠵?࠵?࠵?࠵?࠵? ࠵?࠵?࠵?࠵?࠵? = ࠵?࠵?࠵? ࠵?࠵?࠵?࠵?࠵?࠵?࠵? ࠵?࠵?࠵?࠵?࠵?࠵?࠵? ࠵? ࠵?࠵?࠵? ࠵?࠵?࠵?࠵? ࠵?࠵?࠵?࠵?࠵? = ࠵?࠵?࠵?࠵?࠵?࠵?࠵?࠵?࠵? ࠵?࠵?࠵?࠵?࠵?࠵? + ࠵?࠵?࠵?࠵?࠵?࠵?࠵?࠵?࠵?࠵?࠵? ࠵? ࠵?࠵?࠵? ࠵?࠵?࠵?࠵? ࠵?࠵?࠵?࠵?࠵? Figure 7. Current ratio Source: Niskanen, Niskanen (2007, 61) The current ratio is quite simple and it is easy to use, there is also a downside due to the ratio format. Like in quick ratio, there are general guidelines for a current ratio as well.