Business, 03.04.2020 02:31 Daisysolis5191

Analysis of Financial Statements: Liquidity Ratios Liquidity ratios are used to measure a firm's ability to meet its obligations as they come due. Two of the most commonly used liquidity ratios are the: (1) Current ratio and (2) Quick, or acid test, ratio. The current ratio is the most commonly used measure of solvency. Its equation is: If a firm is having financial difficulty, it typically begins to pay its accounts payable more slowly and to borrow from the bank, both of which will increase its current causing a decline in the current ratio. The quick ratio is a measure of a firm's ability to pay off obligations without relying on the sale of , which are typically the least liquid of a firm's current assets. Its equation is:

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Analysis of Financial Statements: Liquidity Ratios Liquidity ratios are used to measure a firm's abi...

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