Liquidity ratio measures the ability of a company to pay its current and long term liabilities. It’s the easiest way to know how much fund a company can raise and how much asset can convert into cash?
Liquidity ratio can be categorized into various types such as: Acid ratio, Cash ratio & current ration.
Acid Ratio: Acid ratio also called as quick ratio. Acid ration defines the ability of a company to meet its current and short term obligations with the use of its most liquid assets.
Calculation method: Cash & cash equivalents + Accounts receivable + Short term investments / Current liabilities