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L

Liquid Capital Ratio

Liquid capital ratio

Liquidity

Liquidity ratios are used to determine whether the business has enough current assets to pay off any debts that may need repaying.

Current liabilities are analysed in relation to liquid assets. By doing this the business is evaluating whether they have enough capital to cover short term debt obligations.

Liquidity Ratios

• Current ratio
• Liquid capital ratio

Both of these are worked out by using figures on a statement of financial position

Loans

A bank loan is money lent to an individual or business that is paid off with interest over an agreed period. Usually this rate of interest is fixed.

This means that the business knows in advance what the cost of borrowing will be and what monthly repayments will be required. This allows the business to manage their cash flow.

The bank may require the business to secure its assets against the loan. This means that if the business is unable to repay the loan, the bank can demand the sale of the assets to raise money to pay back the loan.