Blog entry by Toritsemogha Afinotan

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by Toritsemogha Afinotan - Tuesday, 11 May 2021, 4:14 PM
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Liquidity ratios basically provides an outlook  of a company’s ability to generate cash to meet its immediate needs of which there are three commonly used liquidity ratios: 

1. The current ratio:- this is the ratio of current assets to current liabilities; Indicates a company's ability to satisfy its current liabilities with its current assets

2. The quick ratio:- this is the ratio of quick assets (generally current assets less inventory) to current liabilities; Indicates a company's ability to satisfy current liabilities with its most liquid assets.

3. The net working capital to sales ratio:- This is the ratio of net working capital (current assets minus current liabilities) to sales; Indicates a company's liquid assets (after meeting short term obligations) relative to its need for liquidity (represented by sales).

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