What Are Liquidity Ratios?
Liquidity ratios measure a company’s ability to pay its short-term debt obligations. They include the current ratio, the quick ratio, and the days sales outstanding ratio.
In general, a higher liquidity ratio shows a company is more liquid and has better coverage of outstanding debts.
Key Takeaways
- Liquidity ratios can determine a debtor’s ability to pay off current debt.
- Common liquidity ratios include the quick ratio, current ratio, and days sales outstanding.
- Liquidity ratios determine a company’s ability to cover short-term obligations and cash flows, while solvency ratios are concerned with a longer-term ability to pay ongoing debts.
Investopedia / Daniel Fishel
