USA Liquidity Ratios Help Please!!!

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I need some help with the explanation of liquidity ratios and what they mean to the company. I am working on a paper for Coca Cola Company and I have the numbers but I am having a hard time relating it to what it means as far as how the company is doing.

Any help would be great!!!
 

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I know you posted this a while back... however, if you are still looking for information on liquidity ratios I have 11 accounting videos that outline the most used financial statement ratios on my website at TheAccountingDr dot com. Click on VIDEOS and the under FINANCIAL ACCOUNTING and FINANCIAL STATEMENT ANALYSIS. There are also lecture notes that accompany the videos on my website as well.

I hope this helps. Good luck on the project!
 

bklynboy

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I cant really see what the ratios are that are on the attachment as its too small. But in general liquidity ratios try to measure how well a company can cover its short term obligations. There are different sets including current ration (current assets/current liabs), quick ratio (same as above but excludes current assets that are difficult to quickly turn to cash such as inventory, prepaid items) and cash ratio (cash+marketable securities/current liabs).

In practice a result higher than 1 means they can cover the liabs, but this is just a rule of thumb and an extraordinary high number may mean they are not using the cash in the best possible use and sacrificing earnings for liquidity.

Also, creditors typically want a high ratio as they have more assurance that cash flows will materialize to pay back suppliers and better able to weather any shortfalls in sales in the next 12 months. Investors want the opposite, they prefer that companies keep the minimum to pay creditors but invest more aggressively to increase earnings and better utilize working capital. You should also look at how the ratio for Coco Cola compares to the industry to see how they stack up with competitors in managing short term obligations.
 
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Liquidity Ratio

I need some help with the explanation of liquidity ratios and what they mean to the company. I am working on a paper for Coca Cola Company and I have the numbers but I am having a hard time relating it to what it means as far as how the company is doing.

Any help would be great!!!
Liquidity ratio is a ratio that is used to test the speed and the rate at which a company can meet its short term financial obligation.Only current assets that can be easily converted to cash will be used as the numerator.

The formula is as described below:

Liquidity ratio = Current Assets - Stock
Current Liabilities
 

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