So, let’s understand what are the types of liquidity ratios … A balance sheet is provided as an example for calculating a company's financial position by measuring its liquidity, which is the ability to pay its current debt with its current assets. Ratio Analysis: Type # 4. The current ratio tells a company’s ability to pay off the debt obligations. (A) Liquidity Ratios: They are very useful to short-term creditors or lenders. 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. Quick Ratio; The quick ratio is also called acid test ratio. Liquidity Ratios consist of Current Ratio (Also known as Working Capital Ratio), Quick Ratio (Also known as Acid Test), Operating Cash Flow Ratios, and solvency ratio. Understanding the Two Types of Liquidity Ratios. Analysts compare the liquidity ratios of one firm to another firm or the industry for comparative analysis. Liquidity Ratios: Liquidity ratios are the group of financial ratios that measure entity financial ability to pay its short term debit. Liquidity ratios are a measure of the ability of a company to pay off its short-term liabilities. Liquidity is a very critical part of a business. Liquidity is required for a business to meet its short term obligations. These ratios are used externally as well as internally for analysis. Liquidity ratios are very useful for analyzing liquidity position of the company. Each of them deserves close attention: 1. They want to determine the risk level involved in giving short term credit to the business. Liquidity ratios are financial ratios that measure a company’s ability to repay both short- and long-term obligations. There’s more than one type of liquidity ratio that determines the financial health of a banking institution. Types of Liquidity Ratios. Therefore, the above analysis suggests that liquidity analysis is an important tool to measure the short-term solvency of a company. These ratios can be divided into two broad categories: (A) Liquidity Ratios (B) Stability Ratios. Liquidity Ratios. There are many variety ratios including current ratio, quick ratio, defensive interval ratio, cash ratio, and working capital ratio. 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. 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 … USES OF LIQUIDITY RATIOS. 2 Types of Liquidity Ratio Current Ratio. 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