Cash and profitability ratio calculations—worked example
Cash and profitability ratio calculations—worked example

The following Practice Management precedent provides comprehensive and up to date legal information covering:

  • Cash and profitability ratio calculations—worked example

Cash and profitability ratio calculations—

Current ratio

FormulaCalculationResultResult from previous month/year% movement
Current assets ÷ Current liabilities764,400 ÷ 534,2001.431.392.88%

If the ratio falls below 1.0, the firm has insufficient current assets to pay off its current liabilities when they fall due. Compare this result to the previous current ratio result. If the current ratio is deteriorating and falling close to 1.0, calculate the other ratios to help better understand why the firm is running out of money.

WIP days ratio

FormulaCalculationResultResult from previous month/year <% movement<

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