Liquidity Ratios

Question 1

Cash ratio

Answer 1

• A company’s ability to pay its current liabilities with its cash and cash equivalents.
• A high cash ratio indicates that the company has a strong short-term liquidity position.

Question 2

Quick ratio

Answer 2

• Similar to the cash ratio, but it also includes short-term investments and net accounts receivable in the numerator.
• A high quick ratio indicates that the company has a strong short- term liquidity position.

Question 3

Current ratio

Answer 3

• A company’s ability to pay its current liabilities with its current assets.
• A high current ratio indicates that the company has a strong short-term liquidity position.