Creditors and investors often use liquidity ratios to gauge how well a business is performing. Since creditors are primarily concerned with a company’s ability to repay its debts, they want to see there is enough cash and equivalents available to meet the current portions of debt.
In a nutshell :
- Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price.
- Cash is the most liquid of assets, while tangible items are less liquid. ...
- Current, quick, and cash ratios are most commonly used to measure liquidity.