Liquidity ratios are probably the most commonly used of all the business ratios. Creditors may often be particularly interested in these because they show the ability of a business to quickly generate the cash needed to pay outstanding debt. This information should also be highly interesting since the inability to meet short-term debts would be a problem that deserves your immediate attention.
Liquidity ratios are sometimes called working capital ratios because that, in essence, is what they measure. The liquidity ratios are: the current ratio and the quick ratio. Often liquidity ratios are commonly examined by banks when they are evaluating a loan application. Once you get the loan, your lender may also require that you continue to maintain a certain minimum ratio, as part of the loan agreement.
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