liquidity ratios

Measures of a firm’s ability to meet its short-term obligations. Liquidity ratios are especially important to creditors. The level of liquidity needed varies from industry to industry. Certain industries are more cash-intensive than others. For example, grocery stores will need more cash to buy inventory constantly than software firms, so the liquidity ratios of companies in these two industries are not comparable to each other. It is also important to note a company’s trend in liquidity ratios over time. Liquidity ratios include the current ratio, the quick ratio and the cash ratio.