Investor Glossary-liquidity ratioInvestor Glossary-liquidity ratioInvestor Glossary-liquidity ratioInvestor Glossary-liquidity ratioInsightful stock market charts - Click here
investor
Categories    # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Liquidity Ratio

The HTML to link to this page
 

A liquidity ratio measures a company's ability to pay its bills. The denominator of a liquidity ratio is the company's current liabilities, i.e., obligations that the company must meet soon, usually within one year. The numerator of a liquidity ratio is part or all of current assets. Perhaps the most common liquidity ratio is the current ratio, or current assets/current liabilities. Because current assets are expected to be converted to cash within one year, this liquidity ratio includes assets and liabilities of equal longevity. The problem with the current ratio as a liquidity ratio is that inventories, a current asset, may not be converted to cash for several months, while many current liabilities must be paid within 90 days. Thus a more conservative liquidity ratio is the acid test ratio -- (current assets - inventory)/current liabilities -- which excludes relatively illiquid inventories. The most conservative liquidity ratio is the cash asset ratio or the cash ratio, which includes only cash and cash equivalents (usually marketable securities) in the numerator. Finally, note that the liquidity ratio sometimes means the cash ratio.



Rate this liquidity ratio definition...

Learn about investing with the Investor Glossary Term of the Day


Click here for insightful stock market charts. Where is the market headed? The answer may surprise you. Find out
with the exclusive & Barron's recommended charts of Chart of the Day.


Popular Terms: diluted share, phantom income, labor relations, liquidity ratio, APR, per diem, ex-dividend date, ex-dividend, inflation, FICO score, option premium, average price per share, cancelled check, VIX, deferred revenue, covered put, class C shares, quality assurance, irrevocable trust, command economy, in escrow, wholly-owned subsidiary, retained earnings, debt service coverage, balance sheet, real GDP, required rate of return, 1031 exchange, minority interest, dividends payable, EBITDA, deferred tax, risk management, Key Rate Duration, 144a, annual return, implied volatility, limit order, LIBOR, 1035 exchange, margin rate, stock split, open position, 401a, reverse mortgage, current ratio, Zero Cost Collar, FTSE, stock market close


Home | Term of the Day | Suggest a Term | Chart of the Day | Dogs of the Dow
Investor Glossary Index >>> # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Accounting | Banking | Bonds | Brokers | Economy | Futures | Mutual Funds | Options | Real Estate | Retirement | Stocks | Taxes | Technical Analysis
©2004-2014 Investor Glossary - All rights reserved - Terms of Use