Finance Definition
Liquidity Ratio
🏦 Banking
intermediate

Quick Definition

Liquidity ratios measure a company's ability to meet its short-term obligations using its most liquid assets.

Formula

Current Ratio = Current Assets / Current Liabilities

Examples

  • 1A company with a high current ratio indicates it has more than enough liquid assets to cover its current liabilities.
  • 2A retail business uses its quick ratio to determine if it can pay off its immediate debts without selling inventory.
  • 3Banks often assess their liquidity ratios to ensure they can cover unexpected large withdrawals.
  • 4Investors look at a company's cash ratio to gauge its ability to handle sudden financial downturns.

Tags

liquidityfinancial-ratiosasset-managementdebt-managementcorporate-finance
Related Terms
Other terms you might find helpful
Current Ratio
The current ratio is a liquidity ratio that measures a company's ability to pay off its short-term liabilities with its short-term assets.
Quick Ratio
The Quick Ratio, also known as the acid-test ratio, measures a company's ability to meet its short-term obligations with its most liquid assets without relying on inventory.
Quick Info
Category:Banking
Difficulty:intermediate
Last Updated:6/19/2025