Liquidity ratio

What is Liquidity ratio?

A liquidity ratio is a type of financial ratio that is used to assess a company's ability to meet its short-term financial obligations.

Liquidity ratios are used to determine how much short-term debt a company can pay off with its current assets. It is used to determine a company’s creditworthiness.

The cash ratio, current ratio, quick ratio, and net working capital ratio are all liquidity ratios. Lower liquidity ratios are warning signs that the company is on the verge of bankruptcy. The liquidity ratio is used to manage a company’s working capital and to understand its market position.

Furthermore, the liquidity ratio is used by investors and creditors to assess a company’s ability to manage its current liabilities. Lowering the debt collection cycle, paying debt on time, and reducing overheads can all contribute to higher profits.

Did you know?

Liquidity ratios are used to assess a company’s ability to pay short-term debts. Nimblefincorp can help you calculate your company’s liquidity, which will improve the efficiency of your day-to-day operations.
You can even get free consulting. Try it out right now.

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