Question

What are liquidity ratios?

Answer 1

Liquidity ratios are calculated to determine the short-term solvency of a business, i.e. the ability of the business to pay back its current dues. Liquidity means easy conversion of assets into cash without any significant loss and delay.

Short-term creditors are interested in ascertaining liquidity ratios for timely payment of their debts.

Liquidity ratio includes

1. Current Ratio
2. Liquid Ratio or Quick Ratio