Which ratio is used to assess a company's liquidity?

Which ratio is used to assess a company's liquidity?

Step 1: Understand what liquidity means. Liquidity refers to how easily a company can pay its short-term debts.
Step 2: Identify the current ratio. The current ratio is a financial metric used to evaluate liquidity.
Step 3: Learn how to calculate the current ratio. The current ratio is calculated by dividing current assets by current liabilities.
Step 4: Know what current assets are. Current assets are things a company owns that can be quickly turned into cash, like cash itself, inventory, and accounts receivable.
Step 5: Understand what current liabilities are. Current liabilities are debts or obligations that a company needs to pay within a year, like accounts payable and short-term loans.
Step 6: Use the current ratio to assess liquidity. A higher current ratio indicates better liquidity, meaning the company is more capable of paying its short-term obligations.

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