Liquidity Ratios

Liquidity ratios are financial metrics used to assess a company's ability to meet its short-term obligations using its liquid assets. The two main types are the current ratio and the quick ratio. The current ratio measures whether a company can cover its current liabilities with its current assets, while the quick ratio focuses on the most liquid assets, excluding inventory. High liquidity ratios indicate financial health, suggesting a company can pay its debts when they come due, which is crucial for stability and operational success.