Ratios used to judge the adequacy of liquid assets for meeting short-term
obligations as they come due, including
1) the current ratio,
2) the acid-test ratio,
3) the inventory turnover ratio, and
4) the accounts receivable turnover ratio.
Short-term Solvency Ratios – It’s a ratio to measure the firm’s ability to meet short-term financial obligations. With this the firm will avoid financial distress in the short-run. There are two most important Short-term Solvency Ratios
1. Current Ratio.
2. Quick Ratio.
Margin of Safety refers the excess of actual sales over the Break even sales. This is usually indicated in percentage. Formula for MOS is (Actal Sales-Break even sales)*100/Break even sales