Absolute liquid ratio - Liquidity ratios

Although receivables debtors and bills receivable are usually more liquid than inventories yet there may be doubts regarding their realization into cash right away or in time. Hence some authorities are of the opinion that the absolute liquid ratio should also be calculated together with current ratio and acid test ratio so as to exclude even receivable from the current assets and find out the absolute liquid assets.

Absolute liquid assets contain cash in hand and at bank and marketable securities or tem pray investment. The acceptable norm for this ratio is 50% or 0.5:1 or1:2 i.e. re.1 worth absolute liquid assets are considered adequate to pay rs 2 worth current liabilities in time as all the creditor s are not expected to demand cash at the same time and then cash may also be realized from debtors and inventories.