#Liquidity101

Liquidity management is essential in financial planning and decision-making for businesses. It focuses on the company's ability to meet its current obligations, which are usually short-term.

What is a liquidity ratio?

The liquidity ratio is a metric that measures a company's ability to meet its short-term financial obligations. It indicates the financial health of the company by evaluating its current assets, such as cash, marketable securities, and accounts receivable, in comparison to its short-term liabilities, such as short-term debt and other payables.

The most common liquidity ratio is the acid-test ratio. This measures a company's ability to settle its short-term debts with liquid assets, such as cash equivalents or working capital. Another popular measure is the current ratio, which assesses whether a company has enough current assets to cover its short-term liabilities.