Liquidity ratios are the ratios that measure the ability of a company

to meet its short term debt obligations. These ratios measure the ability of
a company to pay off its short-term liabilities when they fall due.The
liquidity ratios are a result of dividing cash and other liquid assets by the
short term borrowings and current liabilities. They show the number of
times the short term debt obligations are covered by the cash and liquid
assets. If the value is greater than 1, it means the short term obligations
are fully covered.Generally, the higher the liquidity ratios are, the higher
the margin of safety that the company posses to meet its current
liabilities. Liquidity ratios greater than 1 indicate that the company is in
good financial health and it is less likely fall into financial difficulties
(Ratio, 2015).
Most common examples of liquidity ratios include current ratio, acid
test ratio (also known as quick ratio), cash ratio and working capital ratio.
A. Current ratio

Definition

The current ratio is balance-sheet financial performance measure of

company liquidity.The current ratio indicates a company's ability to meet
short-term debt obligations. The current ratio measures whether or not a
firm has enough resources to pay its debts over the next 12 months.
Potential creditors use this ratio in determining whether or not to make
short-term loans. The current ratio can also give a sense of the efficiency
of a company's operating cycle or its ability to turn its product into cash.
The current ratio is also known as the working capital ratio.

Calculation (formula)

The current ratio is calculated by dividing current assets by current

liabilities:
The current ratio = Current Assets / Current Liabilities

= 1.860.815.321/1.090.616.756=1,71
Both variables are shown on the balance sheet (statement of financial
position).

Explanation
The currrent ratio for PT Perusahaan Gas Negara (Persero) Tbk was

1,71, it is indicates that the company has the ability to meet short-term
debt obligations. The higher the ratio, the more liquid the company is.
Commonly acceptable current ratio is 2; it's a comfortable financial
position for most enterprises. Acceptable current ratios vary from industry
to industry. For most industrial companies, 1.5 may be an acceptable
current ratio. Low values for the current ratio (values less than 1) indicate
that a firm may have difficulty meeting current obligations. However, an
investor should also take note of a company's operating cash flow in order
to get a better sense of its liquidity. A low current ratio can often be
supported by a strong operating cash flow. If the current ratio is too high
(much more than 2), then the company may not be using its current
assets or its short-term financing facilities efficiently. This may also
indicate problems in working capital management. All other things being
equal, creditors consider a high current ratio to be better than a low
current ratio, because a high current ratio means that the company is
more likely to meet its liabilities which are due over the next 12 months.
B. Quick Ratio

Definition

The term Acid-test ratio is also known as quick ratio. The most basic
definition of acid-test ratio is that, it measures current (short term)
liquidity and position of the company. To do the analysis accountants
weight current assets of the company against the current liabilities which
result in the ratio that highlights the liquidity of the company.

The formula for the acid-test ratio is:

Quick ratio = (Current Assets Inventory) / Current liabilities

=

(1.860.815.321-65.367.426)/1.090.616.756)

=1,65
This concept is important as if the companys financial statements
( income statement, balance sheet) get through the analysis of the acidtest ratio, then the short term debts can be paid by the company.

Explanation

The quick ratio for PT Perusahaan Gas Negara (Persero) Tbk was 1,65 its
indicates the stability of the company and its ability to pay off their short
term debts. If the value of the acid-term ratio is less than 1, then it is said
that such a company is not stable and may face difficulty is paying off
their debts (short term). The biggest advantage of acid-test ratio is that it
helps the company in understanding the end results very feasibly. The
only major issue with the acid-test ratio is its dependence of the accounts
receivable and current liabilities which can cause trouble. If due to any
dispute the contract with the creditor or debtors gets messed up whole of
the process gets unbalanced. And also, a minor mistake in the calculation
can just destroy and conclude misleading outcomes.
C. Cash Ratio

Definition

Cash ratio (also called cash asset ratio) is the ratio of a company's cash
and cash equivalent assets to its total liabilities. Cash ratio is a refinement
of quick ratio and indicates the extent to which readily available funds can
pay off current liabilities. Potential creditors use this ratio as a measure of
a company's liquidity and how easily it can service debt and cover shortterm liabilities. Cash ratio is the most stringent and conservative of the

three liquidity ratios (current, quick and cash ratio). It only looks at the
company's most liquid short-term assets cash and cash equivalents
which can be most easily used to pay off current obligations.

Calculation (formula)

Cash ratio is calculated by dividing absolute liquid assets by current

liabilities:
Cash ratio = Cash and cash equivalents / Current Liabilities
= 1.216.028.736/1.090.616.756 = 1.11
Both variables are shown on the balance sheet (statement of financial
position).

Explanation

The cash ratio for PT Perusahaan Gas Negara (Persero) Tbk was 1,11 it is
indicates that the business will be able to pay all its current liabilities in
immediate short term. Therefore, creditors usually prefer high cash ratio.
But businesses usually do not plan to keep their cash and cash equivalent
at level with their current liabilities because they can use a portion of idle
cash to generate profits. This means that a normal value of cash ratio is
somewhere below 1.00.
D. Working Capital Ratio

Definition

Working capital ratio is the ratio between current assets and current
liabilities to demonstrate the company's ability to pay its debts that
must be met by using its current assets or usually called the balance
sheet financial performance measure of company liquidity.

Calculation (formula)

Working Capital Ratio : (Current assets-Current liabilities)/ Total

Assets
:

(1.860.815.321-

1.090.616.756)/6.251.496.359=0,124

Explanation
The working capital ratio for PT Perusahaan Gas Negara (Persero)
Tbk was 0,124. The positive number indicates that the current
assets of a business at the point are more than its current liabilities
and this tells that the company is not expected to suffer from
liquidity crunch in near future. However, if current assets are less
than current liabilities the working capital is negative, and this
communicates that the business may not be able to pay off its
current liabilities when due.