Quick Ratio; The quick ratio is also called acid test ratio. Therefore, the above analysis suggests that liquidity analysis is an important tool to measure the short-term solvency of a company. They are very useful to short-term creditors or lenders. Definition, Explanation and Use: Liquidity ratios determine the ability of a business to finance, its day to day operations, or in other words, to pay its debts as they become due out of its current or liquid resources.. Trade payables and short term lenders are more interested in these ratios. Liquidity ratios are financial ratios that measure a company’s ability to repay both short- and long-term obligations. Current ratio is the type of liquidity ratio that measures the company’s ability to pay its short term liability by comparing the current assets, which the company can convert to cash within one year, to its current liabilities which … Liquidity Ratios: Liquidity ratios are the group of financial ratios that measure entity financial ability to pay its short term debit. So, let’s understand what are the types of liquidity ratios … Common liquidity ratios include the following: The current ratio Current Ratio Formula The Current Ratio formula is = Current Assets / Current Liabilities. Here are the types of liquidity ratios. Liquidity is a very critical part of a business. Ratio Analysis: Type # 4. Liquidity is required for a business to meet its short term obligations. Liquidity ratios are very useful for analyzing liquidity position of the company. These ratios are used externally as well as internally for analysis. Liquidity ratios are a measure of the ability of a company to pay off its short-term liabilities. These ratios can be divided into two broad categories: (A) Liquidity Ratios (B) Stability Ratios. They want to determine the risk level involved in giving short term credit to the business. (A) Liquidity Ratios: Liquidity Ratios. It is a liquidity ratio that measures the capability of a business for payment of its current liabilities with only current assets when they come due. Understanding the Two Types of Liquidity Ratios. Analysts compare the liquidity ratios of one firm to another firm or the industry for comparative analysis. Types of Liquidity Ratios. 2 Types of Liquidity Ratio Current Ratio. The current ratio tells a company’s ability to pay off the debt obligations. Each of them deserves close attention: 1. 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