Liquidity = Cash.
Liquidity = Current Ratio.
Current Ratio = Current Assets / Current Liabilities.
Current Ratio = 1 >> Good [Equal to 1 means they can only cover their short-term liabilities. The business needs to improve on this. Safe but can be better].
Current Ratio < 1 >> Bad [Less than 1 means it will be a bit difficult to pay off short term debtors].
Current Ratio > 1 >> Great [Greater than 1 means there is enough asset to cover short term debts].
The current ratio, otherwise termed as the “working capital ratio”. This ratio measures the ability of most businesses to cover their short-term obligations (debts) that are due within a year or less.
The ratio considers the weight of total current assets versus total current liabilities.
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