Current ratio and Quick ratio:

Let us begin with liquidity ratios. Liquidity ratios refer to a firm's ability to meet its short-term obligations and are concerned with the size and composition of the firm's working capital position. A higher working capital position implies more liquidity. An important ratio is the current ratio, which equals current assets divided by current liabilities. This ratio indicates the amount of current assets available to meet all its obligations under current liabilities. The current ratio includes inventories, but since inventories are among the least liquid of a company's assets, it is sometimes useful to exclude them. Deducting inventories from the current ratio gives us the quick or acid-test ratio:

Quick ratio = (Current assets - Inventories)/Current Liabilities 

Next we turn to some activity ratios.  These by and large have to do with sales generated, often in relation to the amount  invested in them. One such measure is the accounts receivable turnover, which equals net credit sales divided by turnover.

A related measure is the average collection period, which is given by (365)(receivables)/ (net credit sales). We can look at the total asset turnover which is an overarching activity ratio and is defined as:

Total asset turnover = Net sales/total assets

Now let us focus on some financial leverage ratios, which will enable us to talk about the capital structure of firms. Sometimes, as in Britain, leverage is called 'gearing'. Leverage ratios reflect a firm's risk position by analysing its financing mix. the idea is that more the operations of the firm is financed through debt, the greater the risk. Information on this can be obtained from the firm's balance sheet. The other way is to use income statement data to derive the coverage ratios, which measure the company's ability to service that debt. Two widely used ratios derived from the information in balance sheets are the debt ratio and the debt-equity  ratio.