What's it: The liquidity ratio is a financial ratio to measure a company's ability to meet its short-term obligations. Commonly used ratios are the current ratio, cash ratio, and quick ratio. Their calculations are relatively easy because we

# Liquidity Ratio

## Current Ratio: How to Calculate and Interpret

What's it: The current ratio is a financial ratio to measure liquidity by considering all short-term assets and liabilities. It is the loosest ratio among other liquidity ratios such as quick and cash ratios. We get the current

## Quick Ratio: Formula, Calculation, Interpretation

What's it: The quick ratio is a financial ratio to measure liquidity by excluding some less liquid accounts such as inventory. It tells us how much more liquid current assets can cover short-term liabilities. Inventories and some other

## Acid Test Ratio: Meaning, Formula, Calculation

What's it: The acid test ratio is a liquidity ratio to measure whether a company has sufficient cash to cover current liabilities using its liquid assets. First, we add up cash and cash equivalents, short-term investments, and accounts

## Defensive Interval Ratio: Importance, Calculation, and Interpretation

What's it: The defensive interval ratio is a financial ratio to measure how long a company can continue to meet daily expenses using existing liquid assets without obtaining additional financing. We calculate it by adding up liquid

## Cash Ratio: Formula, Calculation, and Interpretation

What's it: The cash ratio is a financial ratio to measure a company's ability to meet its short-term liabilities. It is the most conservative ratio in measuring liquidity compared to the current ratio or quick ratio. This is because it

## Cash Conversion Cycle: How it Works, Calculation and Interpretation

What's it: The cash conversion cycle measures how long, in days, it took a company to collect cash since the money was spent on buying raw materials. The shorter the cycle, the faster the company generates cash from its investment in selling