Learn how to calculate and interpret three common liquidity ratios—current, quick, and cash—to assess a company’s ability to pay its short-term obligations. Find out how these ratios can help you evaluate a company’s financial health, credit risk, and investment potential. Current ratio The current ratio is one of the most commonly used liquidity ratios. It evaluates how well a business can settle its immediate debts using its current assets. A current ratio greater than 1 indicates that the company has more current assets than current liabilities, suggesting good short-term financial health and the ability to cover its short-term obligations. Quick ratio (Acid-Test ratio) The quick ratio, also known as the acid-test ratio, evaluates how well a company can ... Liquidity ratio affects credibility & credit rating of company, Acid Test Ratio or quick ratio, Current Ratio, Absolute liquidity ratio, Basic Defense Ratio This blog aims to comprehensively understand liquidity ratios, their significance in financial analysis, and how they impact decision-making for investors, creditors, and stakeholders. We will explore the different types of liquidity ratios, their formulas, interpretations, and industry-specific benchmarks. Additionally, we will delve into the factors that affect liquidity ratios and strategies to improve them.
