Liquidity ratio
A measure of ability to meet short-term obligations.
Definition
Liquidity ratios compare short-term assets to short-term liabilities. The current ratio uses all current assets; the quick ratio excludes inventory as less readily convertible.
Why it matters
Lenders and acquirers look at liquidity before profitability. A ratio below one signals that obligations due this year exceed the resources available to meet them.
Related terms
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