Blog entry by Toritsemogha Afinotan
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).