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Answer:
Liquidity of a business is measured by two liquidity ratios, viz.,Current Ratio and Quick Ratio (also known as Acid-Test Ratio).
While current ratio is the ratio between current assets and current liabilities, acid-test ratio is the ratio between quick assets (i.e., current assets minus inventories) and current liabilities.
In real life business situations the above two ratios are not adequate at all. What we actually need is on-the-spot liquidity when the situation so warrants. It is in this context,
after extensive consultations with trade and industry, I have developed a new ratio called Trigger Ratio. It is the ratio between the cash available on hand today to the cash payments required to be made today. This ratio should obviously be more than 1 on a given day.
People who understand business well will surely appreciate the relevance and value of this pragmatic ratio.
While current ratio is the ratio between current assets and current liabilities, acid-test ratio is the ratio between quick assets (i.e., current assets minus inventories) and current liabilities.
In real life business situations the above two ratios are not adequate at all. What we actually need is on-the-spot liquidity when the situation so warrants. It is in this context,
after extensive consultations with trade and industry, I have developed a new ratio called Trigger Ratio. It is the ratio between the cash available on hand today to the cash payments required to be made today. This ratio should obviously be more than 1 on a given day.
People who understand business well will surely appreciate the relevance and value of this pragmatic ratio.
First answer by Profgsr.
Last edit by Profgsr.
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