### Travel and Tourism

Current Ration- Also known as liquidity ratio and working capital ratio shows the proportion of current assets of a business in relation to its current liabilities. Current ratio expresses the extent to which the current liabilities of a business (i.e. liabilities due to be settled within 12 months) are covered by its current assets (i.e. assets expected to be realized within 12 months). A current ratio of 2 would mean that current assets are sufficient to cover for twice the amount of a company's short-term liabilities. It is calculated with the formula below.

Current Ratio | = | Current Assets |

| | Current Liabilities |

| | |

Acid test ration- also known as quick Ratio, shows the ratio of cash and other liquid resources of an organization in comparison to its current liabilities.

Quick Ratio | = | Cash in hand + Cash at Bank + Receivables + Marketable Securities |

| | Current Liabilities |

Acid test ratio shows the extent of cash and other current assets that are readily convertible into cash in comparison to the short-term obligations of an organization. A quick ratio of 0.5 would suggest that a company is able to settle half of its current liabilities instantaneously.

Acid test ratio differs from current ratio in that those current assets that are not readily convertible into cash are excluded from the calculation such as inventory and deferred tax credits since conversion of such assets into cash may take considerable time.

Quick ratio may therefore alternatively be calculated as follows:

Quick Ratio | = | Current Assets - Inventory - Advances - Prepayments |

| | Current Liabilities |

Advances to suppliers and prepayments may be excluded from the calculation, as they do not result in inflow of cash resources in the future that may be used to settle liabilities.

Return on net assets- The return on net assets (RONA) is a comparison of net income with the net assets. This is a metric of financial performance of a company that takes into account earnings of a company with regard to fixed assets and net working capital.

The return on net assets (RONA) helps the investors to determine the percentage net income the company is generating from the assets. This ratio tells how effectively and efficiently the company is using its assets to generate earnings. This is an important ratio because in many companies the fixed assets are a single largest component of the investment.

Return on Net Assets = Net Income / (Fixed Assets + Net Working Capital)

Debtors Collection period- The period, on average, that a business takes to collect the money owed to it by its trade debtors.

Debtor Collection Period =

(Debtors x 365)/Credit Sales

Creditors collection period-

## Comments

## Post a Comment