What are the important ratios of liquidity reporting and it’s significance

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Important liquidity ratios include current ratio, quick ratio, and cash ratio. They measure a company's ability to meet short-term obligations.

Current ratio: Compares current assets to current liabilities. A ratio above 1 indicates a company can cover its short-term obligations.
Quick ratio: Similar to current ratio but excludes inventory from current assets. Provides a more conservative measure of liquidity.
Cash ratio: Measures a company's ability to cover short-term liabilities with cash and cash equivalents only. A higher ratio indicates better liquidity.
Significance: These ratios help assess a company's short-term financial health and ability to meet obligations without relying on external sources of funding.

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