FINAL TEST : CASH RATIO (ERMA FATIMAH_46110038)

FINAL TEST Liquidity Analysis: CASH RATIO

ERMA FATIMAH (46110038)

1.           What is Liquidity Analysis ?

According to Subramanyam and Wild, 2009, liquidity can be defined as the availability of resources to cover the company's short-term cash needs. There are two aspects of liquidity analysis, those are working capital and operating liquidity.

2.           Liquidity Analysis Working Capital

            1. Current Ratio

Company’s capability to cover its current liabilities with current assets owned.

            2. Quick Ratio

Inventory is not considered as a measure of liquidity of the company. Inventory is current assets which is less liquid because it takes a relatively long time to change into cash.

3. Cash Ratio

       Components of cash, cash equivalents, and short-term investment that used as a measure of company’s liquidity.

4. Cash Flow Liquidity Ratio

       Company’s capability provides current assets with a truly liquid as cash, cash equivalents and short-term investment, and cash flow from operating activities to cover its current liabilities.

3.        Cash Ratio

This ratio only use cash, cash equivalents, and short-term investments. This ratio is based on the assumption that the component of non-cash current assets, such as inventory and accounts receivable, classified as illiquid assets because it takes a relatively long time to change into cash and also have a very high risk. So it is not used as a liquidity measure of company.

Example:

Interpretation:

Every Rp 1 of Current Liabilities guaranteed by Cash and Short-Term Investment about Rp 11,06.

4.           Conclusion

The difference between total cash in company with total lialibilities which can be used. This ratio is good for company liquidity level.