#Liquidity101 Liquidity is a ratio used to measure a company's ability to meet its short-term obligations. This ratio compares short-term liabilities with short-term resources (current assets) available to meet those short-term obligations.

Purpose of Liquidity Ratio:

The calculation of the liquidity ratio has purposes and benefits for both the internal and external parties of the company. The following are the purposes of the liquidity ratio results:

To measure the company's ability to pay short-term obligations.

To measure the company's willingness to pay short-term obligations without considering inventory.

To compare the amount of existing inventory with the company's working capital.

To know the amount of cash available to pay debts.

To measure the size of cash turnover.

Useful as a planning tool for the future, particularly related to cash and debt planning.

To improve the performance of management.