To better understand how the information for the numerator and the denominator of each calculation is obtained, figure 12-1 illustrates the process. This figure takes the balance sheet and the statement of revenue and expense that were discussed in the preceding chapter and illustrates the source of each figure in the four liquidity ratios. The multiple computations in days of cash on hand and in days receivable are further broken out into a three-step process to better illustrate the sources of information.

Two of the liquidity ratios are illustrated in this practice exercise. Refer to doctors Smith and Brown's financial statements appearing in the preceding exercises for chapter 11.

1. Set up a worksheet for the current ratio and the quick ratio.

2. compute the ratios for Doctors Smith and Brown.

Refer to the metropolis health system (MHS) case study appearing in chapter 33

1. Set up a worksheet for liquidity ratios.

2. Compute the four liquidity rations using the MHS financial statements appearing in chapter 33