Liquidity ratio - Financial definition
Financial acronyms
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Concise definition of the term liquidity ratio
Liquidity ratios are financial metrics that measure a company's ability to cover its immediate financial obligations using its readily available assets.
Comprehensive definition of the term liquidity ratio
Common liquidity ratios include the current ratio, which measures the company's current assets against its current liabilities, and the quick ratio (acid-test ratio), which is a more stringent measure that excludes certain less liquid assets from consideration.
High liquidity ratios generally indicate that a company has sufficient short-term resources to meet its commitments, while low ratios may suggest liquidity challenges. These ratios are valuable tools for creditors, investors, and management to gauge a company's financial stability and liquidity position.