Liquidity is typically measured using several financial ratios:
Current Ratio: This is calculated by dividing current assets by current liabilities. A ratio above 1 indicates that the company has more current assets than current liabilities. Quick Ratio: Also known as the acid-test ratio, this metric excludes inventory from current assets before dividing by current liabilities. It provides a more stringent measure of liquidity. Cash Ratio: This ratio is calculated by dividing cash and cash equivalents by current liabilities. It shows the extent to which current liabilities can be covered by cash alone.