Liquidity ratio specifies the amount of liquid assets a company has, which can be used in payment of short term debt obligations. And that thus means, that bigger the liquidity ratio better is the margin that a company holds, to clean up its short term debts. The concept of common liquidity ratio includes the current ratio factor, the quick ratio factor and the operating cash flow ratio. Though different analysts as per their understanding take in different asses to be relevant in calculating the liquidity, some analysts consider only the sum of cash and equivalents divided by current liabilities as they consider these particulars as the liquid asset which would be most likely to be sold off to cover short term debts, especially in cases of emergencies. A company’s ability to use goods in paying off the liabilities when creditors are seeking payment speaks a deal enough about its capability of handling its assets. And the liquidity ratio is a way to determine whether the company will be a growing concern by the bankruptcy analysts.
.
What is Liquidity Ratio?
