Ratio Analysis

1. Liquidity Analysis

Liquidity ratios measure the ability of the organization to pay current obligations.

Current ratio current assets divided by current liabilities

Assets and liabilities are found on the Balance Sheet of an organization. To determine the 2005 current ratio for Arcadia Hospital, the Balance Sheet provides two sections Assets and Liabilities and Equity. The assets are divided into Current Assets and Property, Plant, and Equipment or PPE. For the current ratio numerator you need Current Assets, which is 6,900. The liabilities and equity are divided into Current Liabilities, LT (long-term) Liabilities, and Equity. For the denominator you need Current Liabilities, which is 3,200.

The current ratio is:

6,900/3,200 - when this is compared to the...