Key Note Company Reports contain Liquidity Ratios for all UK companies which provide relevant accounting data to Companies House. These Ratios are also provided in our Benchmarking Reports for a Market, where we list down the main companies active in a market area and give there financial data and ratios for comparison.
A guide on what Liquidity Ratios are and how to use them is given below
A measure of short-term liquidity less the value of stocks held by a company.
Current assets-inventory / Current liabilities
This should ideally be greater than 1, although in an industry of fast turnover a ratio of under 1 is considered good. The higher the ratio the more capable the company is in paying its debts when they are due. Lower than 1 suggests a company may struggle in making payments such as loan repayments, suppliers, tax bills, etc if they are due at that point. If a company has long inventory turnover periods this could lead to liquidity problems
The short-term balance between assets and liabilities due within one year, measuring a company’s ability to meet payments due.
Total current assets / Total current liabilities
This should also ideally be greater than 1. A higher ratio indicates financial integrity.