Financial Education

Liquidity ratios help investors determine whether a company can pay its bills from day to day. These ratios can be especially useful when looking at small high-tech companies or companies in distress. For high-tech companies, it may be some time before their ideas become commercially viable so it is important to know if the bills are covered in the meantime. For distressed companies, their long-term future may be in doubt and even short-term investors may have concerns.

The three main liquidity ratios are:

• The current ratio.
• The quick ratio.
• The defensive interval.

For more information, see all articles on: Financial Statement Analysis, Fundamental Analysis, Investing in Stocks, Ratio Analysis, Security Selection

See also:

Ratio Analysis

Liquidity Constraints to Investment Portfolio Management

The Current Ratio

Identifying Financial Risk Exposures

The Quick Ratio