LIQUIDITY RATIOS

Liquidity is the ability of company meets its short-term obligations when they fall due. As company should have enough cash and the current assets, which can be converted into cash so that it can pay its suppliers and lenders on time. The following ratios are calculated: Current ratio Quick ratio / Liquid ratio Net working capital ratio Cash ratio

CURRENT RATIO Current ratio is a widely used indicator of companys ability to pay its debts in the short-term. It is the relationships between current assets and current liabilities. Current assets are those assets which can be easily converted into cash within a short period of time or with in an operating cycle generally one year. Current liabilities are those which are payable within a short period of time generally one year.

Current ratio

Current assets = ------------------------------------Current liabilities

Table 5.11 Current Ratio for the year 2007-2011

Year
2007 2008 2009 2010 2011

Current Assets
13436840.80 13421876.40 15938793.11 20313404.31 21862553.42

Current Liabilities
9296774.19 8769478.00 10759810.01 14494830.18 14043914.74

Current Ratio
1.45 1.53 1.48 1.40 1.56

(Source: Roentgen Surgicals Pvt. Ltd. Annual Reports year 2007-2011)

From the table, it reveals with the current ratio from the year 2007-2011. Internationally accepted current ratio is 2:1 i.e., current assets shall be 2 times of current

liabilities. The ability of the concern also depends on current asset position. Here, current assets are sufficient to meet its current liabilities, but still it can increase up to 2. Hence the companys solvency position is good for all the years indicated above but not satisfactory.

Current Ratio Total, 2011, 1.56

Total, 2008, 1.53 Total, 2009, 1.48

Total, 2007, 1.45

Total, 2010, 1.40

5.3.1.3.2 QUICK RATIO This ratio is also termed as Acid Test Ratios and Liquidity Ratio. This ratio is ascertained by comparing the liquid assets to current liabilities. Prepaid expenses and stock are not taken as quick assets. Bank overdraft is not taken as quick liability. The quick atio/acid test ratio is very useful in measuring the liquidity position of a firm. It measures the firm's capacity to pay off current obligations immediately and is more rigorous test of liquidity than the current ratio.

Quick assets Quick Ratio = ---------------------------Quick liabilities

Table 5.12 Quick ratio for the year 2007-2011

Year
2007 2008

Liquid Assets
8061139.15 5198665.80

Current Liabilities
9296774.19 8769478.00

Liquid Ratio
0.87 0.59

2009 2010 2011

9847078.11 13360266.36 14220991.42

10759810.01 14494830.18 14043914.74

0.92 0.92 1.01

(Source: Roentgen Surgicals Pvt. Ltd. Annual Reports year 2007-2011)

From the above table in 2007-2010 the ratio is less than the ideal ratio 1. But, 2009 and 2010 were mere close to 1. Here, quick liabilities are equal when compared with quick assets. Usually, a high liquid ratio indicates that the firm is liquid and has the ability to meet its current or liquid liabilities in time and on the other hand a low liquidity ratio represents that the firm's liquidity position is not good. Hence, the present position of the business is considered to be satisfactory.

Liquid Ratio
1.2 1.01 1 0.8 0.6 0.4 0.2 0 2007 2008 2009 2010 2011 0.59 0.87 0.92 0.92