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# Analysis of Short Term Financial Position or Test of Liquidity:

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 Trade creditors; creditors for expenses; commercial banks; short-terms lenders are concerned with the short-term financial position or liquidity of the unit. Management is also interested in knowing how efficiently working capital is being utilized by the business. Shareholders and long-term creditors are also interested in studying the prospectus of dividend and interest payment.Liquidity ratios measure the ability of the unit to meet its short-term (generally one year) obligations and reveals the short-term financial strength or weakness. Such ratios provide answer to questions like: (a) Is the unit capable to meet short-term obligation? (b) Is working capital being properly utilized? (c) is the current financial position improving? Two types of ratios are calculated for testing short-term financial position of the business, these are liquidity ratios and current assets movement or efficiency ratios: Liquidity ratios usually consist of: Activity/efficiency ratios usually consist of:
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## More study material from this topic: Meanings, Nature and Usefulness of Ratios Analysis Interpretation of Ratios Important Factors for Understanding Ratios Analysis Significance and Usefulness Ratios Analysis Classification of Ratios Analysis of Short Term Financial Position or Test of Liquidity Current Ratio Quick/Acid Test/Liquid Ratio Absolute Liquid Ratio Inventory/Stock Turnover Ratio Debtors / Receivable Turnover Ratio Creditors / Payables Turnover Ratio Working Capital Turnover Ratio Profitability Ratios Gross Profit Ratio (GP Ratio) Operating Profit Ratio Net profit ratio (NP ratio) Earnings Per Share Ratio Operating ratio Expense ratio Solvency ratios - Test of Long Term Solvency Debt-equity Ratio Debt Service Ratio or Interest Coverage Ratio Fixed Assets Ratio Debts to Total Funds or Solvency Ratio Reserves to Capital Ratio Capital Gearing Ratio Proprietary Ratio Accounting Ratios Formulas Limitations of Ratios Analysis

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