Liquidity ratios give us idea about company short term financial health of the company. There are two main ratios to check for liquidity, current ratio and quick ratio. Current ratio is current assets divided by current liabilities and quick ratio is current assets minus inventory divided by current liabilities. Ideally these ratios should be above one. This ratio tells about the short term liquidity of the company.
For Volkswagen the current ratio is more than 1 and hence indicates that the company short term liquidity is fine however it is slightly above 1 and management should look to improve this ratio. Also these values should be compared with the industry’s current ratio and check how the company fares as compared to the industry. These values are largely dependent on different types of industries and hence the comparison should be made across the firms in the same industry. It would not be appropriate to these ratios across firms of different industries.
Next liquidity ratio is the quick ratio. This is the more stringent version of the current ratio. This ratio is below 1 for the both the years. Company should also try to improve this ratio. Normally this ratio should also be above 1 (Volkswagen, 2012).