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Liquidity Ratios
Liquidity ratios are used by financial analysts to evaluate the financial
soundness of a company. These ratios measure a company’s ability to repay
both short-term and long-term debt obligations. Liquidity ratios are often
used to determine the riskiness of a firm to decide whether to extend credit
to the firm.
A. Asset Ratios
Asset ratios look at a company’s balance sheet assets to evaluate
liquidity. These ratios generally use increasingly stricter variants of
current assets to determine a company’s level of solvency.
Current Ratio
Quick Ratio
Cash Ratio
Defensive Interval Ratio
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