ratios indicate higher liquidity
This essay focuses on ratios indicate higher liquidity. You want to keep just enough to make sure short-term bills are paid. Too much working capital means
ratios indicate higher liquidity
I need you to answer two-part separately part 1 answer the question Please respond to the following: Examine the key reasons why a business may not want to hold too much or too little working capital. Provide examples that illustrate the consequences of either situation. Now, I will start with asking what is working capital? Why is it important? So, if you have answered my questions you already know that working capital is basically your assets minus your liabilities. You want to keep just enough to make sure short-term bills are paid. Too much working capital means you have assets that you are not putting to use. Too little working capital means you do not have operating liquidity available. As an example, let us look at a car lot. We know that at certain times of the year, cars sell better than others.
Current Ratio and quick ratio, both ratios indicate higher liquidity and more excellent financial health.
Cash Ratio: Cash, bank balances are the most liquid assets of the company.
Cash Ratio = (Cash and Bank balances+Current Investments)/(Current Liabilities)
What are some examples of liquidity?
Cash and stocks have high liquidity because they are easy to access and trade. Land and real estate are generally less liquid, and it takes a long time to sell it and get money out of it.
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