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Liquidity ratios

Common measures include the current ratio, current assets divided by current liabilities, and the quick ratio, which generally excludes inventory from the numerator under the chosen convention. State definitions and timing, and assess cash flow, receivables quality, inventory turnover and debt maturity alongside the ratios. A year-end snapshot can be affected by seasonality and does not guarantee obligations can be paid on time.

Worked example

Current assets are $300,000, including $90,000 inventory, and current liabilities are $150,000. The current ratio is 2.0:1 and, excluding inventory, the quick ratio is 1.4:1.

Common mistake

Assuming a high current ratio proves adequate cash, or comparing quick ratios calculated with different exclusions without adjustment.

Where it appears in your exams

QualificationExamRelationshipPeriod
ACCA FR Direct September 2026–June 2027
ACCA SBR Supporting September 2026–June 2027