Financial Analysis Series (Part 5): Formula implementation |Current, Quick & Cash Ratio Explained

Описание: Welcome to Part 5 of our Financial Analysis Series!
In the previous video, we learned the formulas and meaning of Current Ratio, Quick Ratio, and Cash Ratio.
Now, it’s time to apply these ratios directly on a company’s balance sheet and understand how to interpret the results in real-world analysis with example of Tech mahindra

We’ll cover step-by-step:

1️⃣ Current Ratio Implementation:

Formula: Current Assets / Current Liabilities
👉 Example: If Current Assets = ₹10,00,000 and Current Liabilities = ₹5,00,000
Current Ratio = 10,00,000 / 5,00,000 = 2.0
Interpretation: The company has ₹2 of current assets for every ₹1 of liability — strong short-term position.

2️⃣ Quick Ratio Implementation:

Formula: (Current Assets – Inventory) / Current Liabilities
👉 Example: (₹10,00,000 – ₹2,00,000) / ₹5,00,000 = 1.6
Interpretation: After removing inventory, the company still has ₹1.6 to pay every ₹1 of short-term debt — very healthy liquidity.

3️⃣ Cash Ratio Implementation:

Formula: (Cash + Cash Equivalents) / Current Liabilities
👉 Example: (₹1,50,000 + ₹50,000) / ₹5,00,000 = 0.4
Interpretation: The company can instantly pay 40% of its short-term obligations using only cash — moderate cash strength.

💡 Key Takeaway:

A higher ratio means better liquidity, but too high might indicate inefficient use of assets.
Always compare ratios over time or with industry benchmarks for meaningful insights.

By the end of this session, you’ll not only know how to calculate liquidity ratios but also how to interpret them directly from real balance sheet data — an essential skill for investors and analysts.

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⚠️ Disclaimer:
The information provided in this video is for educational purposes only and should not be considered as financial or investment advice.
All examples and data used are for illustrative purposes to help viewers understand financial concepts and analysis techniques.
Viewers are advised to conduct their own research or consult a qualified financial advisor before making any investment decisions.
The creator of this video is not responsible for any financial losses or decisions made based on the information shared.