Liquidity ratios

You aren't normally able to identify separately the figures for prepayments and advance lease rentals so the normal calculation would simply be current assets : current liabilities These prepayments and advance lease payments are in the form of cash in that, if the company had NOT made these payments in advance, the cash resource would have been correspondingly greater Thus I personally would be inclined to stick with the standard calculation of current assets : current liabilities Hope that helps

Thanks for your reply. The company did provide the breakdown of other trade receivable. So your suggestion is to include everything? Thanks

What's the difference between a receivable and a prepayment? Both are current assets the benefit from which will be realised in the near future. For the first, the benefit is cash. For the second, the benefit is not having to pay cash Yes, I would include both

Thanks a lot. Lastly, we should exclude deferred income and credits from debts in calculating debt/equity ratio? The company has provided net debt to equity ratio... what does net debt include and is it better to calculate simply debt to equity? Thanks

Frankly, it doesn't matter what you include or exclude! So long as you're consistent from one month to the next or one year to the next Debt is often simply the figure for long term liabilities. But is deferred tax part of financing? Should you exclude the deferred tax figure when considering "debt" "Net debt" is generally taken to be "short- and long-term debt less cash and cash equivalents" "and is it better to calculate simply debt to equity?" - better? It depends what you want! It's probably easier and therefore quicker .... and is probably just as meaningful!

Thanks a lot.

You're welcome