What are 'Liquidity Ratios'
Liquidity ratios are a class of financial metrics 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.
BREAKING DOWN '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.

Current Ratio
The current ratio is a liquidity ratio measuring a company's ... 
Quick Ratio
The quick ratio is an indicator of a company’s shortterm liquidity. ... 
Cash Asset Ratio
The current value of marketable securities and cash, divided ... 
Cash Ratio
The ratio of a company's total cash and cash equivalents to its ... 
Overall Liquidity Ratio
A measurement of a company’s capacity to pay for its liabilities ... 
Quick Liquidity Ratio
The total amount of a company’s quick assets divided by the sum ...

Markets
Do Your Investments Have ShortTerm Health?
If a company is strong enough to survive tough times, it is more likely to provide longterm value. 
Investing
Financial Analysis: Solvency Vs. Liquidity Ratios
Solvency and liquidity are equally important for a company's financial health. A number of financial ratios are used to measure a company’s liquidity and solvency, and an investor should use ... 
Investing
Financial Ratios to Spot Companies Headed for Bankruptcy
Obtain information about specific financial ratios investors should monitor to get early warnings about companies potentially headed for bankruptcy. 
Markets
What is the Cash Ratio?
The cash ratio is the ratio of a company's total cash and cash equivalents to its current liabilities. 
Markets
Analyze Investments Quickly With Ratios
Make informed decisions about your investments with these easy equations. 
Investing
Key Financial Ratios to Analyze Tech Companies
Understand the technology industry and the companies that operate in it. Learn about the key financial ratios used to analyze tech companies. 
Markets
Dynamic Current Ratio: What It Is And How To Use It
Learn why this ratio may be a good alternative to the current, cash and quick ratios. 
Markets
Analyze Investments Quickly With Ratios
There are four categories of financial ratios: profitability, liquidity, solvency and valuation. 
Markets
Liquidity Measurement Ratios
Learn about the current ratio, quick ratio, cash ratio and cash conversion cycle. 
Investing
Debt Ratio
The debt ratio divides a company’s total debt by its total assets to tell us how highly leveraged a company is—in other words, how much of its assets are financed by debt. The debt component ...

To what extent should you take a company's liquidity ratio into account before investing ...
Find out how important it is for an investor to know a company's liquidity ratio before deciding to invest, and why relying ... Read Answer >> 
How can a company quickly increase its liquidity ratio?
Discover what high and low values in the liquidity ratio mean and what steps companies can take to improve liquidity ratios ... Read Answer >> 
Is there a downside to having a high liquidity ratio?
Find out why it might be disadvantageous for a company to have liquidity ratios that are too high, and learn how to find ... Read Answer >> 
What are the differences between solvency ratios and liquidity ratios?
Learn about liquidity ratios and solvency ratios, some examples of these ratios and the main difference between them. Read Answer >> 
What are the main differences between the current ratio and the quick ratio?
Find out how the quick ratio and the current ratio can offer different views on a company's ability to pay off liabilities. Read Answer >> 
What is the relationship between the cash ratio and liquidity?
Understand the relationship between a company's cash ratio and its liquidity. Learn what the cash ratio measures and what ... Read Answer >>