Explore BrainMass

Explore BrainMass

    Importance of Liquidity Ratios

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    What are liquidity ratios? Why are they important? How might you use liquidity ratios when making your personal investment decisions?

    Please properly cite your references. Thanks.

    © BrainMass Inc. brainmass.com June 3, 2020, 10:54 pm ad1c9bdddf

    Solution Preview

    Liquidity ratios are ratios that show the relationship of a firm's cash and other current assets to its current liabilities (Brigham & Houston, 2007). Ratios that are included in this liquidity category are current ratio and quick ration or acid test ratio. Current ratio is calculated by dividing current assets by current liabilities. It indicates the extent to which current liabilities are covered by those assets expected to be converted to cash in the near future. Quick (Acid Test) ratio is ...

    Solution Summary

    Liquidity ratios are examined. The importance and how to use them in personal investment decisions is given.