Question: What is liquidity and what are the liquidity ratios?
Answer:
Liquidity is the ability of the firm to convert assets into cash. It is also called marketability or short-term solvency. The liquidity of a business firm is usually of particular interest to its short-term creditors since the liquidity of the firm measures its ability to pay those creditors.
Several financial ratios measure the liquidity of the firm. Those ratios are the current ratio, the quick ratio or acid test, net working capital, and the interval measure or the burn rate.
