{"id":25526147,"date":"2022-05-30T15:00:48","date_gmt":"2022-05-30T09:30:48","guid":{"rendered":"https:\/\/entri.app\/blog\/?p=25526147"},"modified":"2022-05-30T20:14:13","modified_gmt":"2022-05-30T14:44:13","slug":"liquidity-ratios-what-are-they","status":"publish","type":"post","link":"https:\/\/entri.app\/blog\/liquidity-ratios-what-are-they\/","title":{"rendered":"Liquidity Ratios: What Are They?"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_79_2 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69d052bfc4ed9\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69d052bfc4ed9\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/entri.app\/blog\/liquidity-ratios-what-are-they\/#Liquidity_Ratio\" >Liquidity Ratio<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/entri.app\/blog\/liquidity-ratios-what-are-they\/#Types_of_Liquidity_Ratios\" >Types of Liquidity Ratios<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/entri.app\/blog\/liquidity-ratios-what-are-they\/#Importance_of_Liquidity_Ratio\" >Importance of Liquidity Ratio<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/entri.app\/blog\/liquidity-ratios-what-are-they\/#Limitations_of_Liquid_Ratio\" >Limitations of Liquid Ratio<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/entri.app\/blog\/liquidity-ratios-what-are-they\/#3_Ways_to_Use_a_Liquidity_Ratio\" >3 Ways to Use a Liquidity Ratio<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"gmp46Title fs28 fw500\"><span class=\"ez-toc-section\" id=\"Liquidity_Ratio\"><\/span><strong>Liquidity Ratio<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<div class=\"gc13ContentDiv\">\n<p>When it comes to financing, liquidity is a crucial aspect to consider. And\u00a0<strong>liquidity ratio<\/strong>\u00a0is an essential accounting tool that is used to determine the current debt repaying ability of a borrower. Simply, this ratio reflects whether an individual or business can pay off the short term dues without any external financial assistance.<\/p>\n<p>Considering the liquid assets, present financial obligations are analysed to validate the safety limit of a company.<\/p>\n<p><a href=\"https:\/\/entri.sng.link\/Bcofz\/yv45\/8wer\" target=\"_blank\" rel=\"noopener\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-25525623 size-full\" src=\"https:\/\/entri.app\/blog\/wp-content\/uploads\/2022\/05\/blog-banner-1-1.png\" alt=\"\" width=\"970\" height=\"250\" srcset=\"https:\/\/entri.app\/blog\/wp-content\/uploads\/2022\/05\/blog-banner-1-1.png 970w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2022\/05\/blog-banner-1-1-300x77.png 300w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2022\/05\/blog-banner-1-1-768x198.png 768w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2022\/05\/blog-banner-1-1-750x193.png 750w\" sizes=\"auto, (max-width: 970px) 100vw, 970px\" \/><\/a><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Types_of_Liquidity_Ratios\"><\/span><strong>Types of Liquidity Ratios<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Possessing a substantial amount of liquid assets provides the ability to pay off short-term financial obligations on time. Here are the available\u00a0liquidity ratio types\u2013<\/p>\n<ul>\n<li>\n<h3><strong>Current ratio<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>Current ratio implies the financial capacity of a company to clear off the current obligations by using its current assets. Here the current assets include cash, stock, receivables, prepaid expenditures, marketable securities, deposits, etc. And, current debts include short-term loans, payroll liabilities, outstanding expenses, creditors, various other payables, etc.<\/p>\n<p><strong>Formula:<\/strong><\/p>\n<p>Current ratio = current assets \/ current liabilities<\/p>\n<p>Any current ratio lower than 1 implies a negative financial performance for that business or individual. A current ratio below one is indicative of one\u2019s inability to pay off the present time monetary obligations with their assets.<\/p>\n<p><strong>Example of current ratio:<\/strong><\/p>\n<table>\n<tbody>\n<tr>\n<td><strong>Current assets<\/strong><\/td>\n<td><strong>Current liabilities<\/strong><\/td>\n<td><strong>Current ratio (current assets \/ current liabilities)<\/strong><\/td>\n<\/tr>\n<tr>\n<td>Rs. 260 crore<\/td>\n<td>Rs. 130 crore<\/td>\n<td>Rs. 260 crore \/ Rs. 130 crore = 2:1<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<ul>\n<li>\n<h3><strong>Quick ratio or Acid test ratio<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>Quick ratio or acid test ratio is another\u00a0liquidity ratio\u00a0that determines a company\u2019s current available liquidity. Easily convertible (in cash) marketable securities and present holding of cash are considered while calculating the quick ratio. Hence, inventories are excluded when acid test ratio is concerned.<\/p>\n<p><strong>Formula:<\/strong><\/p>\n<ol>\n<li>Quick ratio = (marketable securities + available cash and\/or equivalent of cash + accounts receivable) \/ current liabilities<\/li>\n<li>Quick ratio = (current assets \u2013 inventory) \/ current liabilities<\/li>\n<\/ol>\n<p>1:1 quick ratio is ideal and reflects a stable financial position of a company.<\/p>\n<p><strong>Example of quick ratio:<\/strong><\/p>\n<table>\n<tbody>\n<tr>\n<td colspan=\"2\"><strong>Particulars of current assets<\/strong><\/td>\n<td><strong>Amount in crore<\/strong><\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">Cash and equivalent<\/td>\n<td>Rs. 65,000<\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">Marketable securities<\/td>\n<td>Rs. 15,000<\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">Accounts receivables<\/td>\n<td>Rs. 35,000<\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">Inventory<\/td>\n<td>Rs. 45,000<\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">Total current assets<\/td>\n<td>Rs. 160,000<\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">Total current liabilities<\/td>\n<td>Rs. 60,000<\/td>\n<\/tr>\n<tr>\n<td><strong>Current ratio<\/strong><\/td>\n<td colspan=\"2\">As per formula 1 = (Rs. 65,000 + Rs. 15,000 + Rs. 35,000)\/ Rs. 60,000<\/p>\n<p>= Rs. 115,000\/Rs. 60,000<\/p>\n<p>= 1.91<\/p>\n<p>As per formula 2 = (Rs. 160,000 \u2013 Rs. 45,000)\/Rs. 60,000<\/p>\n<p>= Rs. 115,000\/Rs. 60,000<\/p>\n<p>= 1.91<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<ul>\n<li>\n<h3><strong>Cash ratio<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>Cash or equivalent ratio measures a company\u2019s most liquid assets such as cash and cash equivalent to the entire current liability of the concerned company. As money is the most liquid form of assets, this ratio indicates how quickly, and to what limit a company can repay its current dues with the help of its readily available assets.<\/p>\n<p><strong>Formula:<\/strong><\/p>\n<p>Cash ratio = Cash and equivalent \/ Current liabilities<\/p>\n<ul>\n<li>\n<h3><strong>Absolute liquidity ratio<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>Absolute liquidity ratio pits marketable securities, cash and equivalents against\u00a0current liabilities. Businesses should strive for an absolute liquidity ratio of 0.5 or above.<\/p>\n<p><strong>Formula:<\/strong><\/p>\n<p>Absolute liquidity ratio = (Cash and equivalent + marketable securities)\/current liabilities<\/p>\n<p><strong>Example of absolute liquidity ratio<\/strong><\/p>\n<table>\n<tbody>\n<tr>\n<td colspan=\"2\"><strong>Particulars of liquid assets<\/strong><\/td>\n<td><strong>Amount in crore<\/strong><\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">Cash and equivalent<\/td>\n<td>Rs. 1,65,000<\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">Marketable securities<\/td>\n<td>Rs. 75,000<\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">Accounts receivables<\/td>\n<td>Rs. 90,000<\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">Inventory<\/td>\n<td>Rs. 1,00,000<\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">Current liquid assets<\/td>\n<td>Rs. 4,30,000<\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\"><strong>Particular of Current liabilities<\/strong><\/td>\n<td><strong>Amount<\/strong><\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">Bills payables<\/td>\n<td>Rs. 90,000<\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">Bank overdraft<\/td>\n<td>Rs. 80,000<\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">Outstanding expenses<\/td>\n<td>Rs. 30,000<\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">Creditors<\/td>\n<td>Rs. 1,00,000<\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">Total current liabilities<\/td>\n<td>Rs. 3,00,000<\/td>\n<\/tr>\n<tr>\n<td><strong>Absolute liquidity ratio<\/strong><\/td>\n<td colspan=\"2\">(Rs. 1,65,000 + Rs. 75,000)\/Rs. 3,00,000<\/p>\n<p>= Rs. 2,40,000\/Rs. 3,00,000<\/p>\n<p>=0.8<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<ul>\n<li>\n<h3><strong>Basic defence ratio<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>The basic defence ratio is an accounting metric that determines how many days a company can run on its cash expenses without any outside financial aid. It is also called the defensive interval period and basic defence interval.<\/p>\n<p><strong>Formula:<\/strong><\/p>\n<p><strong>Basic defence ratio<\/strong>\u00a0= current assets\/daily operational expenses<\/p>\n<p>Current assets = marketable securities + cash and equivalent + receivables<\/p>\n<p>Daily operational expenses = (annual operational costs \u2013 non-cash expenses)\/365<\/p>\n<p><strong>Example of a basic defence ratio:<\/strong><\/p>\n<table>\n<tbody>\n<tr>\n<td colspan=\"2\"><strong>Particulars of liquid assets<\/strong><\/td>\n<td><strong>Amount in crore<\/strong><\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">Cash and equivalent<\/td>\n<td>Rs. 1,05,000<\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">Marketable securities<\/td>\n<td>Rs. 55,000<\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">Accounts receivables<\/td>\n<td>Rs. 80,000<\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">Current liquid assets<\/td>\n<td>Rs. 2,40,000<\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\"><strong>Particular of daily operational expenses<\/strong><\/td>\n<td><strong>Amount<\/strong><\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">Annual operating cost<\/td>\n<td>Rs. 5,00,000<\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">Non-cash expenses<\/td>\n<td>Rs. 70,000<\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">Daily operational expenses<\/td>\n<td>Rs. 4,30,000\/365 = 1178<\/td>\n<\/tr>\n<tr>\n<td><strong>Basic defence ratio<\/strong><\/td>\n<td colspan=\"2\">Rs. 2,40,000\/1178<\/p>\n<p>= 203<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<ul>\n<li>\n<h3><strong>Basic liquidity ratio<\/strong><\/h3>\n<\/li>\n<\/ul>\n<p>Contrary to the all above-stated ratios, the\u00a0basic liquidity ratio\u00a0is not related to the company\u2019s financial position. Instead, it is an individual\u2019s financial ratio that denotes a timeline for how long a family can finance its need with its liquid assets. A minimum of 3 months of monetary backup is desirable.<\/p>\n<p><strong>Formula:<\/strong><\/p>\n<p>Basic liquidity ratio = Monetary assets \/ monthly expenses<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Importance_of_Liquidity_Ratio\"><\/span><strong>Importance of Liquidity Ratio<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>As a useful financial metric, the liquidity ratio helps to understand the financial position of a company.<\/p>\n<ul>\n<li>The\u00a0liquidity ratio\u00a0helps to understand the cash richness of a company. It also helps to perceive the short-term financial position. A higher ratio implies the stability of the company. Contrarily, a poor ratio carries a risk of monetary damages.<\/li>\n<li>This ratio provides the complete idea of the concerned company\u2019s operating system. It depicts how effectively and efficiently the company sells its product or services to convert the inventories into cash. With the help of this ratio, a company can improve the production system, plan better inventory storage to avoid any loss, and prepare effective overhead expenses.<\/li>\n<li>A company\u2019s financial stability also depends on its management. Hence, considering this ratio, a company can also optimise its management efficiency in following the demands of potential creditors.<\/li>\n<li>With the help of this ratio, company management can also work towards the betterment of its working capital requirements.<\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"Limitations_of_Liquid_Ratio\"><\/span><strong>Limitations of Liquid Ratio<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ul>\n<li>Similar to the number of liquid assets, quality also plays a crucial part. This ratio only considers the amount of a company\u2019s current assets. Thus, it is advisable to consider other accounting metrics along with liquidity ratios to analyse a company\u2019s liquid strength.<\/li>\n<li>The\u00a0liquidity ratio\u00a0involves inventory to calculate a company\u2019s liquidity. However, this can lead to a miscalculation due to overestimation. Higher inventory can also be a reason for fewer sales. Hence, inventory calculation might not provide the real liquidity of a company.<\/li>\n<li>This ratio might also be an outcome of creative accounting, as it only includes the balance sheet information. To understand the financial position of an organisation, analysts must go beyond the data on the balance sheet to perform a\u00a0liquidity ratio analysis.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<div class=\"article__subsection mc-text-large\">\n<div class=\"mc-mt-6 article-ad__container\" data-mc-segment-trigger=\"true\" data-mc-segment-event-type=\"Article Page Click\" data-event-obj=\"{&quot;title&quot;:&quot;Liquidity Ratios Explained: 4 Common Liquidity Ratios&quot;,&quot;category&quot;:&quot;Business&quot;,&quot;format&quot;:&quot;What is&quot;,&quot;url&quot;:&quot;CURRENT_URL&quot;,&quot;referrer&quot;:&quot;CURRENT_REFERRER&quot;,&quot;location&quot;:&quot;body&quot;}\"><strong style=\"color: #1d1f20;font-size: 1.953em\">How to Interpret a Liquidity Ratio<\/strong><\/div>\n<\/div>\n<div class=\"article__subsection mc-text-large\">\n<div class=\"mc-mt-6 article-ad__container\" data-mc-segment-trigger=\"true\" data-mc-segment-event-type=\"Article Page Click\" data-event-obj=\"{&quot;title&quot;:&quot;Liquidity Ratios Explained: 4 Common Liquidity Ratios&quot;,&quot;category&quot;:&quot;Business&quot;,&quot;format&quot;:&quot;What is&quot;,&quot;url&quot;:&quot;CURRENT_URL&quot;,&quot;referrer&quot;:&quot;CURRENT_REFERRER&quot;,&quot;location&quot;:&quot;body&quot;}\">\n<div class=\"contentful__section-body highlight-shareable\">\n<p>A liquidity ratio can reveal one of three financial indicators.<\/p>\n<ul>\n<li><strong>Liquidity ratio of one<\/strong>: If a company&#8217;s current assets equal its current liabilities, then it will have a liquidity ratio of one. In other words, its current assets could pay for one hundred percent of its current short-term debt.<\/li>\n<li><strong>Liquidity ratio of less than one<\/strong>: If a company\u2019s liquidity ratio is less than one, the company does not have enough cash (or cash equivalents) to meet its short-term debt obligations. For instance, a liquidity ratio of 0.75 means that the company only has enough cash on hand to pay 75 percent of its short-term liabilities. This could foretell a liquidity crisis.<\/li>\n<li><strong>Liquidity ratio over one<\/strong>: If a business&#8217;s current ratio measures greater than one, it has more than enough liquid assets to cover the short-term debts on its balance sheet. For instance, a financial statement that shows a liquidity ratio of two suggests that the company has enough cash assets (or the equivalent) to pay its liabilities two times over.<\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"3_Ways_to_Use_a_Liquidity_Ratio\"><\/span><strong>3 Ways to Use a Liquidity Ratio<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Liquidity ratios reveal numerous insights about a company.<\/p>\n<ol>\n<li style=\"list-style-type: none\">\n<ol>\n<li><strong>Solvency<\/strong>: Liquidity ratios are essentially solvency ratios. If a company does not have enough liquid assets to quickly pay off short-term debt and liabilities, it may teeter on the edge of bankruptcy.<\/li>\n<li><strong>Profitability<\/strong>: While some startups may endure heavy debt as part of their early existence, a well-established business needs to be profitable to survive. If a company cannot manage to have a steady cash flow many years into its existence, it may not be designed for profitability.<\/li>\n<li><strong>Billing<\/strong>: Some companies struggle to maintain a reasonable amount of cash on hand because their customers don&#8217;t pay their bills on time. The Days Sales Outstanding (DSO) ratio compares the balance of accounts receivable to the revenue a company makes in a day. Accounts receivable does not factor into all liquidity ratios, but it is a key component of the quick ratio, which is favored by some accounting managers and investment bankers.<\/li>\n<\/ol>\n<\/li>\n<\/ol>\n<p><a href=\"https:\/\/entri.sng.link\/Bcofz\/yv45\/8wer\" target=\"_blank\" rel=\"noopener\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-25525622 size-full\" src=\"https:\/\/entri.app\/blog\/wp-content\/uploads\/2022\/05\/blog-banner1-1-1.png\" alt=\"\" width=\"345\" height=\"345\" srcset=\"https:\/\/entri.app\/blog\/wp-content\/uploads\/2022\/05\/blog-banner1-1-1.png 345w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2022\/05\/blog-banner1-1-1-300x300.png 300w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2022\/05\/blog-banner1-1-1-150x150.png 150w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2022\/05\/blog-banner1-1-1-24x24.png 24w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2022\/05\/blog-banner1-1-1-48x48.png 48w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2022\/05\/blog-banner1-1-1-96x96.png 96w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2022\/05\/blog-banner1-1-1-75x75.png 75w\" sizes=\"auto, (max-width: 345px) 100vw, 345px\" \/><\/a><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Liquidity Ratio When it comes to financing, liquidity is a crucial aspect to consider. And\u00a0liquidity ratio\u00a0is an essential accounting tool that is used to determine the current debt repaying ability of a borrower. Simply, this ratio reflects whether an individual or business can pay off the short term dues without any external financial assistance. Considering [&hellip;]<\/p>\n","protected":false},"author":92,"featured_media":25525988,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[802,558],"tags":[],"class_list":["post-25526147","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-articles","category-general-knowledge"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Liquidity Ratios: What Are They? - Entri Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/entri.app\/blog\/liquidity-ratios-what-are-they\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Liquidity Ratios: What Are They? - Entri Blog\" \/>\n<meta property=\"og:description\" content=\"Liquidity Ratio When it comes to financing, liquidity is a crucial aspect to consider. And\u00a0liquidity ratio\u00a0is an essential accounting tool that is used to determine the current debt repaying ability of a borrower. Simply, this ratio reflects whether an individual or business can pay off the short term dues without any external financial assistance. 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