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.
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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 ... 
AcidTest Ratio
A stringent indicator that determines whether a firm has enough ... 
Cash And Cash Equivalents  CCE
An item on the balance sheet that reports the value of a company's ...

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In general terms only, investors and analysts consider a good, healthy accounts payable turnover ratio to fall in the range ... Read Full Answer >> 
What are the differences between solvency ratios and liquidity ratios?
Liquidity ratios and solvency ratios are tools investors use to make investment decisions. Liquidity ratios measure a company's ... Read Full Answer >> 
What are some of the limitations and drawbacks of using the cash conversion cycle ...
The cash conversion cycle, or CCC, is an important financial metric used by investors, analysts and a company's own internal ... Read Full Answer >> 
Are solvency ratios more concerned with the shortterm or the longterm?
Solvency is a company's ability to meet all of its debt obligations. Solvency generally describes a company's ability to ... Read Full Answer >> 
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 >>

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