Current and Quick Ratios

Can it pay its short-term bills?

Liquidity ratios check whether a company can cover its short-term obligations with its short-term assets. They're a quick health check on near-term financial safety. Current ratio = Current assets ÷ Current liabilities Quick ratio = (Current assets − Inventory) ÷ Current liabilities Current assets Rs 300, current liabilities Rs 150. Current ratio = 2. Twice the short-term assets needed to cover short-term bills. Current ratio above 1 Short-term assets exceed short-term bills, generally safe. Below 1 May struggle to meet near-term obligations. Quick ratio Stricter, excludes inventory, which can be hard to sell fast. Fast near-term safety check Simple and intuitive Flags cash crunches Very high can mean idle assets Industry norms vary Snapshot on one date only

Part of Learn NEPSE Investing, a free course on reading Nepali company accounts and charts. Section: The Ratios.