GCSE Business (OCR)

Topic Summaries

Finance

Liquidity

Liquidity measures the ability to cover short-term debts using current assets (i.e.can the business pay its bills?).

Liquidity ratios Formula What it shows
Current Ratio Current Assets ÷ Current Liabilities General short-term financial health (ideal: 1.5–2)
Acid Test Ratio (Current Assets − Inventory) ÷ Current Liabilities Liquidity excluding stock (ideal: above 1)

Example:

  • Current Assets = £30,000
  • Inventory = £10,000
  • Current Liabilities = £15,000
  • Current Ratio = £30,000 ÷ £15,000 = 2.0
  • Acid Test Ratio = (£30,000 − £10,000) ÷ £15,000 = 1.33

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