A current ratio that is above 2 may also indicate that the business has too much capital tied up in Current Assets. Quick Ratio Often known as the acid-test this ratio compares current assets, which are readily realisable, such as Cash, Debtors, Shares or other marketable securities to Current Liabilities. Current assets such as Stock and Prepayments are left out of this ratio as they are generally not readily realisable. The Days Debtors Outstanding compares the amount due by Debtors to Revenue and multiplies it by 365. This figure indicates the average number of days debtors are outstanding.
Acceptable figures depend on trading terms.
For a business trading on 30 days credit terms the closer the Days Debtors Outstanding is to 30 days the better. If debtors days significantly exceed trading terms it may indicate collection, administration or product quality problems. To calculate your liquidity ratios enter figures in the boxes below and press the Calc button .