DEFINITION of 'Liquidity Ratios'
A class of financial metrics that is used to determine a company's ability to pay off its shortterms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover shortterm debts.
INVESTOPEDIA EXPLAINS 'Liquidity Ratios'
Common liquidity ratios include the current ratio, the quick ratio and the operating cash flow ratio. Different analysts consider different assets to be relevant in calculating liquidity. Some analysts will calculate only the sum of cash and equivalents divided by current liabilities because they feel that they are the most liquid assets, and would be the most likely to be used to cover shortterm debts in an emergency.
A company's ability to turn shortterm assets into cash to cover debts is of the utmost importance when creditors are seeking payment. Bankruptcy analysts and mortgage originators frequently use the liquidity ratios to determine whether a company will be able to continue as a going concern.
Testing a company's liquidity is a necessary step in analyzing a company. Read Liquidity Measurement Ratios to further improve your understanding of these ratios.
VIDEO

Working Capital
This ratio indicates whether a company has enough short term ... 
Quick Ratio
An indicator of a company’s shortterm liquidity. The quick ratio ... 
Liquidity Coverage Ratio  LCR
Highly liquid assets held by financial institutions in order ... 
Cash Ratio
The ratio of a company's total cash and cash equivalents to its ... 
Degree Of Relative Liquidity  ...
A liquidity metric that looks at a company's ability to support ... 
Liquid Asset
An asset that can be converted into cash quickly and with minimal ...

Why do shareholders need financial statements?
Shareholders need financial statements to evaluate their equity investments and help them make informed decisions as to how ... Read Full Answer >> 
How are liquidity ratios different than solvency ratios?
Liquidity ratios measure a company's ability to meet shortterm debt obligations, while solvency ratios measure a company's ... Read Full Answer >>

Fundamental Analysis
Ratio Analysis Tutorial
If you don't know how to evaluate a company's present performance and its possible future performance, you need to learn how to analyze ratios. 
Investing Basics
Analyze Investments Quickly With Ratios
Make informed decisions about your investments with these easy equations. 
Fundamental Analysis
Take On Risk With A Margin of Safety
More common risk theories can lead to missed opportunities. Find out how margin of safety can propel your portfolio. 
Active Trading
Understanding Liquidity Risk
Make sure that your trades are safe by learning how to measure the liquidity risk. 
Options & Futures
Understanding Financial Liquidity
Understanding how this measure works in the market can help keep your finances afloat. 
Mutual Funds & ETFs
ETF Liquidity: Why It Matters
Lower levels of liquidity in exchangetraded funds make it harder to trade them profitably. 
Markets
Liquidity Measurement Ratios
Learn about the current ratio, quick ratio, cash ratio and cash conversion cycle. 
Fundamental Analysis
What is a Null Hypothesis?
In statistics, a null hypothesis is assumed true until proven otherwise. 
Forex
Is Quantitative Easing Destroying The Euro?
Quantitative easing being undertaken by the ECB to stabilize the Eurozone economies is sure to have some impact in decreasing the value of the euro. 
Stock Analysis
FreeportMcMoRan Is Seeking A Helping Hand
FreeportMcMoRan doesn't have the cash to invest in its planned oil and gas developments, which is forcing it to look for help in funding these projects.