Liquidity Ratios

Liquidity ratios measure management abilities to meet its short term obligations, such as payroll expenses, accounts payable, and other liabilities that come due within a given year. If a firm's liquidity ratios are low, then it indicates the company may have problems meeting it short bills. Too high of a liquidity ratios indicates the firm be reducing its profits with to much of it resources tied up in current assets. The two most common liquidity ratios are the Current Ratio and the Quick Ratio.