# types of liquidity ratios

Liquidity ratios are very useful for analyzing liquidity position of the company. Common liquidity ratios include the following: The current ratio Current Ratio Formula The Current Ratio formula is = Current Assets / Current Liabilities. These ratios can be divided into two broad categories: (A) Liquidity Ratios (B) Stability Ratios. These ratios are used externally as well as internally for analysis. They are very useful to short-term creditors or lenders. So, let’s understand what are the types of liquidity ratios … 2 Types of Liquidity Ratio Current Ratio. They want to determine the risk level involved in giving short term credit to the business. Quick Ratio; The quick ratio is also called acid test ratio. Therefore, the above analysis suggests that liquidity analysis is an important tool to measure the short-term solvency of a company. There’s more than one type of liquidity ratio that determines the financial health of a banking institution. Liquidity Ratios consist of Current Ratio (Also known as Working Capital Ratio), Quick Ratio (Also known as Acid Test), Operating Cash Flow Ratios, and solvency ratio. There are many variety ratios including current ratio, quick ratio, defensive interval ratio, cash ratio, and working capital ratio. USES OF LIQUIDITY RATIOS. Liquidity is required for a business to meet its short term obligations. Ratio Analysis: Type # 4. Understanding the Two Types of Liquidity Ratios. Liquidity ratios are a measure of the ability of a company to pay off its short-term liabilities. Analysts compare the liquidity ratios of one firm to another firm or the industry for comparative analysis. Liquidity Ratios: Liquidity ratios are the group of financial ratios that measure entity financial ability to pay its short term debit. Liquidity Ratios. Here are the types of liquidity ratios. Liquidity is a very critical part of a business. Financial Ratios: These ratios are calculated to judge the financial position of the concern from long-term as well as short-term solvency point of view. Each of them deserves close attention: 1. The current ratio tells a company’s ability to pay off the debt obligations. In this article, we will consider some commonly used liquidity ratios used in the financial analysis of a company. A balance sheet is provided as an example for calculating a company's financial position by measuring its liquidity, which is the ability to pay its current debt with its current assets. Current ratio is the type of liquidity ratio that measures the company’s ability to pay its short term liability by comparing the current assets, which the company can convert to cash within one year, to its current liabilities which … It is a liquidity ratio that measures the capability of a business for payment of its current liabilities with only current assets when they come due. Types of Liquidity Ratios. 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