Measures the ability of a company to meet its short-term liabilities using its liquid assets.

What it Measures ?

How easily can we pay short-term bills?

Relevant StakeHolders 

Risk Manager, CFO

In-depth Use Case / Real-world Example

Liquidity Ratios, such as the current ratio and quick ratio, help assess a company’s ability to meet its short-term obligations. For example, if a company has ₹500,000 in liquid assets and ₹400,000 in current liabilities, the liquidity ratio would be 1.25, indicating it can cover its liabilities with liquid assets. By tracking liquidity ratio trends, companies can monitor fluctuations in their cash position and ensure they maintain adequate liquidity for operations. A decreasing trend may indicate potential liquidity problems, while an increasing trend suggests better financial health. These ratios are critical for assessing short-term financial stability and risk.