What is current ratio, liquidity ratio etc.

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Accepted Answer

Current ratio and liquidity ratio are financial ratios used to measure a company's ability to pay its short-term obligations.

Current ratio is calculated by dividing current assets by current liabilities and measures a company's ability to pay its short-term debts.
Liquidity ratio is calculated by dividing current assets minus inventory by current liabilities and measures a company's ability to pay its short-term debts without relying on inventory.
Other liquidity ratios include quick ratio and cash ratio.
These ratios are important for investors and creditors to assess a company's financial health and ability to meet its obligations.
For example, a current ratio of 2:1 means that a company has twice as many current assets as current liabilities, indicating a strong ability to pay its debts.
On the other hand, a current ratio of less than 1:1 may indicate that a company is struggling to meet its short-term obligations.

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