Liquidity is a company's ability to pay off its short-term debts. It shows the proportion by which the current liabilities are covered by liquid assets. In general, the greater the coverage is, the more likely it is that the company is able to pay the debts when they fall due, and still be able to fund the ongoing operations. The list of predefined KPIs to determine Liquidity Ratios are: -
Cash Ratio (By Profit)
Cash Ratio (By Revenue)
Current Ratio
Quick Ratio
For example the cash ratio indicates to creditors, analysts, and investors the percentage of a company’s current liabilities that cash and cash equivalents will cover. A ratio above 1 means that a company will be able to pay off its current liabilities with cash and cash equivalents, and have funds left over.
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