Chapter 6

Concept of Liquidity Ratios

The Present Chapter

This chapter discusses the concept of liquidity ratios.


Liquidity refers to the ability of a firm to meet its short-term debt obligations. It determines the sustainability of the firm. The better the liquidity of an organization, the higher the working capital soundness and higher the growth prospects.

Liquidity ratios measure whether a company will be able to comfortably continue as a going concern because a company which has trouble in meeting its short-term debt is at a higher risk of bankruptcy.

Liquidity Ratios

These ratios are as follows:

  1. Current ratio: The current ratio measures a company’s current assets against its current liabilities. It is the indicator of sufficiency ...

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