1.

Liquidity Ratio
ability of a company to meet its financial obligations as
they come due
liquidity ratio, then, is a computation that is used to
measure a company's ability to pay its short-term debts
Current Ratio:
o The current ratio is the most liberal of the three. It is
followed by the acid ratio, and the cash ratio.
o ability to pay its current liabilities from its current
assets
o A current ratio that is better than 1 to 1 is considered
good. The higher the ratio, the better the financial
position of the company. Company A is in sound
financial position and the current ratio of 2 to 1
indicates that they can pay their short-term
obligations.
Acid Ratio
o measure how well a company can meet its short-term
obligations with its most liquid assets
o liquid assets are those that can be quickly turned
into cash
o Acid Ratio= (Cash & Cash Equivalents + Short-Term
Investments + Accounts Receivable) Current
Liabilities
o Short-term investments are any investments that will
mature within 90 days
o Cash and cash equivalents refer to such things as
cash on hand, checking accounts, savings accounts
and money market accounts
Cash Ratio
o Ratio of a company's cash and cash equivalent assets
to its total liabilities.
o Cash ratio is a refinement of quick ratio and indicates
the extent to which readily available funds can pay of
current liabilities.
o Potential creditors use this ratio as a measure of a
company's liquidity and how easily it can service debt
and cover short-term liabilities.

2. Debt to Asset Ratio

a leverage ratio
The higher the ratio, the higher the degree of leverage, and
consequently, financial risk
includes long-term and short-term debt (borrowings
maturing within one year), as well as all assets tangible
and intangible.

3. Debt Service Coverage Ratio

it is the amount of cash flow available to meet annual
interest and principal payments on debt, including sinking
fund payments.
DSCR = Net Operating Income / Total Debt Service
A DSCR of less than 1 would mean a negative cash flow. A
DSCR of less than 1, say .95, would mean that there is only
enough net operating income to cover 95% of annual debt
payments.
4. Savings Ratio
an economics term that refers to the proportion of income
which is saved,
usually expressed for household savings as a percentage of
total household disposable income.
The savings ratio is dependant on:
The proportion of older people, as they have less motivation
and capability to save;
the tax system, it can encourage or discourage saving;
the rate of inflation, expectations of rising prices encourage
people to spend now.
5. Solvency Ratio
A key metric used to measure an enterprises ability to
meet its debt and other obligations.

 The solvency ratio indicates whether a companys cash flow

is sufficient to meet its short-term and long-term liabilities.
The lower a company's solvency ratio, the greater the
probability that it will default on its debt obligations.
The measure is usually calculated as follows:

it measures cash flow rather than net income by

including depreciation to assess a companys capacity to
stay afloat.
It measures this cash flow capacity in relation to all
liabilities, rather than only debt.
Measuring cash flow rather than net income is a better
determinant of solvency, especially for companies that
incur large amounts of depreciation for their assets but
have low levels of actual profitability.
Similarly, assessing a companys ability to meet all its
obligations rather than debt alone provides a more
accurate picture of solvency.
A company may have a low debt amount, but if its cash
management practices are poor and accounts payable is
surging as a result, its solvency position may not be as
solid as would be indicated by measures that include only
debt.

6. Investment Asset To Total Asset Ratio

Investments in stocks, mutual funds or other such
investments, which can be converted to cash easily, are
considered as liquid assets.

 Apart from these liquid assets, total assets also include

illiquid assets such as real estate or other such investments
which require more time to convert to cash.
One should hold at least 20 per cent of his/her total assets
as liquid assets.