Liquidity Ratio

A liquidity ratio measures the ratio between a company’s current assets (cash/cash equivalents, accounts receivable, inventory, marketable securities and other liquid assets) and its short-term debt (maturing in less than a year). The current ratio divides current assets by current liabilities; other liquidity ratios take sub-sets of more liquid assets. By definition, companies with liquidity ratios of one or less than one are likely to face liquidity shortfalls. Analysts and investors assess company liquidity ratios as core lending and investing metrics.