Liquidity ratios show how much cash a business has and their ability to turn other assets into cash to pay off both its current and future liabilities as they come due. Furthermore, liquidity ratios are also a measure of how easily a company can raise cash or convert other assets into cash.
Measures the ability of a company to pay its current liabilities when they come due with only quick assets which are current assets such as marketable securities, cash and cash equivalents. Higher quick ratios are imperative for companies as it shows the company is generating enough quick assets (cash) to cover current liabilities. Moreover, a quick ratio of 1 shows that quick assets equal current liabilities. Additionally, a quick ratio of over 1 will show there are quick assets leftover after paying current liabilities.
Quick Ratio:
Measures the firm's ability to pay off its short term liabilities which are due within the next year with its current assets. Additionally, the current ratio helps investors and creditors understand the liquidity of a company and their ability to pay off current liabilities. A higher current ratio is always more favourable as it shows the company can easily pay off its current liabilities. Moreover, a ratio of 2 means that the company will have 2 times more current assets than current liabilities.
Current Ratio:
Measures the proportionate amount of income that can be used to cover interest expenses in the future. Furthermore, the ratio indicates how many times a company could pay the interest with income before it's taxed, thus a larger ratio is more preferable. A ratio of 2 means that the company makes enough income to pay for it’s interest expense two times over.
Time Interest Earned Ratio:
