Liquidity ratio

Liquidity ratio may refer to:


 * Reserve requirement, a bank regulation that sets the minimum reserves each bank must hold.
 * Quick ratio (also known as an acid test) or current ratio, accounting ratios used to determine the liquidity of a business entity

In accounting, the liquidity ratio expresses a company's ability to repay short-term creditors out of its total cash. It is the result of dividing the total cash by short-term borrowings. It shows the number of times short-term liabilities are covered by cash. If the value is greater than 1.00, it means fully covered.

The formula is the following:

LR = liquid assets / short-term liabilities

Liquidity ratios measure how quickly assets can be turned into cash in order to pay the company's short-term obligations. Following ratios can be considered to measure the liquidity of a firm.


 * 1) Working Capital
 * 2) Working Capital Ratio
 * 3) Current Ratio
 * 4) Quick Ratio
 * 5) Absolute Liquid Ratio