The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can by easily bought or sold, are known as liquid assets. Also,The ability to convert an asset to cash quickly. Also known as "marketability". There is no specific liquidity formula, however liquidity is often calculated by using liquidity ratios.
-Current Ratio
A liquidity ratio that measures a company's ability to pay short-term obligations.
The Current Ratio formula is:
Burberry over the three years has been able to generate 1.28, 1.35 and 1.36 times than its short term obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt - as there are many ways to access financing - but it is definitely not a good sign. But here burberry is doing sufficiently well.
-Quick Ratio
An indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company.
The quick ratio is calculated as:
The quick ratio is more conservative than the current ratio, a more well-known liquidity measure, because it excludes inventory from current assets. Inventory is excluded because some companies have difficulty turning their inventory into cash. In the event that short-term obligations need to be paid off immediately, there are situations in which the current ratio would overestimate a company's short-term financial strength. Not given the nature of the business of burberry, its difficult to interpret this ratio. According to the limited information given here, 0.83, 0.73 and 0.88 is burberry's quick ratio which well below 1 constantly over the three years.
Profitability Ratios
A class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well. Some examples of profitability ratios are profit margin, return on assets and return on equity.
-Return on Equity
The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.
ROE is expressed as a percentage and calculated ...