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Tutorial - An Analysis of a Company's Liquidity Position Using Financial Ratios

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Beginning Tutorial on Liquidity Analysis and Management - First Steps
Tutorial - An Analysis of a Company's Liquidity Position Using Financial Ratios

Balance Sheet

Rosemary C. Peavler

Tip: Click on the image to see it in full screen mode. You will also see it in a different window so you can read the explanation and see the image at the same time.

You will find everything you need for liquidity ratio analysis on the company's balance sheet. Liquidity has to do with a firm's assets and liabilities. In particular, liquidity looks at whether or not a firm can pay its current debt with its current assets.

Here is the balance sheet we're going to use as an example. You can see that there are two year's of data for this hypothetical firm. This is because ratio analysis is only a good tool if we can compare the ratios we calculate to either other year's of data or to industry averages.

If you click ahead, we'll use the balance sheet data to calculate the current and quick ratios and net working capital while explaining each and what their change from year to year means. You can replicate the results for your own firm.

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