Definition
A measure that assesses a company’s ability to meet short-term obligations by comparing liquid assets to liabilities.
What to consider
- Use liquidity ratios to see if you can cover short-term obligations.
- Check both current and quick ratios for a full picture.
- Review these metrics regularly to maintain financial readiness.
Real world scenarios
- Investors looked at the company’s liquidity ratio to ensure it had enough liquid assets to meet short-term liabilities during a downturn.
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