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Liquidity Ratio of Purpose and Benefits

Liquidity Ratio of Purpose and Benefits
Liquidity Ratio of Purpose and Benefits
Liquidity ratios are ratios that illustrate the company's ability to meet short-term obligations. This means that if the company is billed, the company will be able to meet the debt, especially debt that is past due.

The following objectives and benefits can be drawn from the liquidity ratio

1. To measure the company's ability to pay obligations or debts that are due immediately when billed. That is, the ability to pay obligations that are due to be paid according to a predetermined deadline

2. To measure the company's ability to pay short-term liabilities with overall current assets. That is, the number of liabilities under one year is equal to one year, compared to total current assets

3. To measure the company's ability to pay short-term liabilities with current assets without taking into account any inventories or receivables. In this case, current assets are reduced by stocks or debts which are considered to have low liquidity

4. To measure or compare the number of stocks available with the company's working capital

5. To measure how much cash is available to pay debt

6. As a planning tool going forward, especially those relating to cash and debt planning

7. To see the condition and position of the company's liquidity from time to time by comparing it for several periods

8. To see the weakness of the company, from each component in the current assets and current debt

9. Being a trigger for management to improve its performance, by looking at the current liquidity ratios
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