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But too high ratio means under utilisation of immediate liquid assets which impairs firm’s profitability i.e., Liquidity-Profitability trangle. Solvency Ratio. The current ratio is also known as the "working capital ratio," showing how well a business can satisfy financial obligations that must be paid back within 12 months. A lackluster liquidity ratio does not necessarily mean a company is doomed forever, especially if it is strategically leveraging debt to scale its operations. When measuring a company’s liquidity, there are conventionally 2 methods of doing so: the current ratio and the quick ratio. As a result, potential creditors use this ratio in determining whether or not to make short-term loans.It is also called the liquidity ratio and the cash asset ratio. They are the current, quick and cash ratios. Liquidity is an asset quality that measures how easy and quick it is to convert an asset or security into cash or equivalent. On the basis of Profit & Loss Account. LIQUIDITY RATIOS Ratios are classified: On the basis of Balance Sheet. Generally speaking, creditors and investors will look for an accounting liquidity ratio of around 2 or 3. II. A liquidity ratio indicates the readiness of a company to generate the funds required to meet its short-term obligations. Liquidity Ratios Definition: Liquidity Ratios are calculated to determine the capacity of a firm to pay off its short-term obligations when they become due. Liquidity Ratio Definition. Liquidity ratio expresses a company’s ability to repay short-term creditors out of its total cash. Also known as the acid test, this liquidity ratio is a bit more useful in evaluating liquidity, since a company normally wouldn't want to liquidate inventory to pay debt. Current Ratio . A ratio of a company's cash and liquid assets to its total liabilities.A cash ratio is a measure of company's liquidity and how easily it can service debt and cover short-term liabilities if the need arises. Understanding liquidity and how the Federal Reserve manages it can help businesses and individuals project trends in the economy and stay on top of their finances. The above classification further grouped into: Liquidity Ratio. Accounting liquidity is the effortlessness of which a company can meet its financial obligations with the liquid assets available. A high current ratio, quick ratio and cash ratio and a low cash conversion cycle shows good liquidity position. Absolute Liquidity Ratio. Current Ratio. The quick ratio is a tougher test of liquidity than the current ratio. Current Ratio: This ratio is obtained by dividing the 'Total Current Assets' of a company by its 'Total Current Liabilities'. This is one dimension of liquidity analysis. These ratios are important in measuring the ability of a company to meet both its short term and long term obligations. The current ratio is a liquidity ratio that measures a company's ability to cover its short-term obligations with its current assets. Liquidity – Colgate vs. Procter & Gamble vs. Unilever. Liquidity ratio analysis is the use of several ratios to determine the ability of an organization to pay its bills in a timely manner. A liquidity ratio is used to measure the ability of a business to generate cash to meet its short term liabilities and debts. Liquidity is the amount of money that is readily available for investment and spending. The working capital ratio is vital to creditors since it shows the liquidity of the company. The Current Ratio, Liquid Ratio and Absolute Liquidity Ratio generally indicate the adequacy of current assets for meeting current liabilities. Current Ratio. Under liquidity ratio there are several more ratios, which come into the picture for checking how financially, sound a company is: I. Current Ratio . Acid Test Ratio or Quick Ratio. It include the quick, current ratio & sales It sets out the minimum liquid assets (MLA) requirements and the liquidity coverage ratio (LCR) requirements that a merchant bank has to comply with. In other words, firm’s cash balance or the readiness to convert its asset into cash, to pay off its current debt is called as liquidity and the ratios that compute it are called as liquidity ratios. Liquidity Ratios are the group of Financial Ratios that normally use for analyzing and measuring the liquidity position of the entity by concerning the relationship between current assets and current liabilities. Liquidity ratios are the financial ratio that indicates ability of a company to meet its short term debt obligations. It shows the number of times short-term liabilities are covered by cash. A liquidity ratio indicates whether a company’s current assets can pay off current debt obligations. 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