#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 fulfill those short-term obligations.

Purpose of the Liquidity Ratio:

The calculation of the liquidity ratio has objectives 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 assess 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 magnitude of cash turnover.

To serve as a planning tool for the future, especially related to cash and debt planning.

To improve the performance of management.

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