Liquidity Ratios
Current asset
 Current ratio = -------------------Current liabilities
SR 708
 Current ratio = ------------ = 1.31 times
SR 540
 We could say Prufrock has SR 1.31 in current assets for every SR 1 in current
liabilities, or we could say that Prufrock has its current liabilities covered 1.31
times over.
Current assets - Inventory
 Quick ratio = -------------------------------------Current liabilities
SR 708 – 422
 Quick ratio = -------------------- = 0.53 times
SR 540
 Because inventory accounts for more than half of Prufrock’s current assets.
That’s also means if this inventory consisted of products like unsold nuclear
power plants, then this would be a cause for concern.
Current assets - Inventory
 Cash ratio = -------------------------------------Current liabilities
SR 98
 Cash ratio = ------------------------- = 0.18 times
SR 540
Net working capital
 Net working capital to total assets = -------------------------------Total assets
 A relatively low value might indicate relatively low levels of liquidity. Here,
this ratio works out to be (SR 708 - 540)/SR 3,588 = 4.7%.
Current assets
 Interval measure = -------------------------------------------Average daily operating costs
 Total costs for the year, excluding depreciation and interest, were SR 1,344.
The average daily cost was SR 1,344/365 = SR 3.68/day. The interval measure
is SR 708/SR 3.68 = 192 days.
 Prufrock could hang on for around 6 months