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.
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.

ShortTerm Debt
An account shown in the current liabilities portion of a company's ... 
Liquid Asset
An asset that can be converted into cash quickly and with minimal ... 
AcidTest Ratio
A stringent indicator that indicates whether a firm has sufficient ... 
Current Ratio
The current ratio is a liquidity ratio measuring a company's ... 
Working Capital
Working capital is a measure of both a company's efficiency and ... 
Quick Ratio
The quick ratio is an indicator of a company’s shortterm liquidity. ...

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. 
Investing
Using Liquidity Ratios
Learn more about these quick and intuitive ratios you can use to analyze a stock's liquidity. 
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. 
Term
How Market Segments Work
A market segment is a group of people who share similar qualities. 
Active Trading
Market Efficiency Basics
Market efficiency theory states that a stock’s price will fully reflect all available and relevant information at any given time.

Which financial metrics are best for analyzing companies in the chemicals sector?
Some of the key financial metrics that investors commonly use to analyze companies in the chemicals sector include the debttoequity ... Read Full Answer >> 
What is considered to be a healthy accounts payable turnover ratio?
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 >>