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 ... 
Current Ratio
A liquidity ratio that measures a company's ability to pay shortterm ... 
Margin Of Safety
A principle of investing in which an investor only purchases ...

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