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Liquidity Ratios

   Also found in: Dictionary/thesaurus, Wikipedia, Hutchinson 0.02 sec.
Liquidity ratios
Ratios that measure a firm's ability to meet its short-term financial obligations on time, such as the ratio of current assets to current liabilities.

Liquidity Ratios

What Does Liquidity Ratios Mean?

A class of financial metrics used to help determine a company's ability to pay off its short-term debt obligations. Generally, the higher the value of the ratio is, the larger the margin of safety that the company possesses to cover short-term debts.

Investopedia explains 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 calculate only the sum of cash and equivalents divided by current liabilities because they feel that they are the most liquid assets and therefore are the most likely to be used to cover short-term debts in an emergency. A company's ability to turn short-term assets into cash 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.

Related Terms:
Acid-Test Ratio
Cash and Cash EquivalentsCCE
Current Ratio
Liquidity
Operating Cash Flow Ratio



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? Mentioned in ? References in periodicals archive
 
Sands said regulators were "kidding themselves" if they believed higher capital and liquidity ratios could be absorbed by banks and their shareholders.
The ministry has not considered regulations on foreign bank branches' liquidity ratios," the Ministry of Strategy and Finance said in a statement.
Liquidity ratios are good although key ratios tightened at end 2008 reflecting the difficult conditions in the financial markets in the last quarter of 2008.
 
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