Figure . Functional classification of ratios Higher the current ratio, the better is the liquidity position, as the firm will be in a better position to pay its current liabilities. However, a much higher ratio may indicate inefficient investment policies of the management. Operating cycle is the time between the acquisition of an asset for processing and its realisation into cash and cash equivalents.
Illustration Calculate current ratio from the following information: Current investments , Trade creditors , , Inventories , , Bills payable , , Trade receivables , , Expenses payable , , Cash and cash equivalents , , Prepaid expenses ,