Liquidity & Working Capital Ratios
Can a company pay its short-term bills?
Liquidity ratios measure whether a company can cover its short-term obligations with the assets it can convert to cash quickly. They compare current assets — cash, receivables, and inventory — against current liabilities to reveal near-term financial health. Investors and lenders watch these ratios closely because a profitable company can still fail if it runs out of cash to pay its bills.
Put these metrics to work
Screen stocks by liquidity5 terms in this topic
Current ratio
A liquidity ratio measuring a company's ability to pay short-term obligations, calculated as current assets divided by current liabilities.
Quick ratio
A stringent liquidity measure assessing ability to meet short-term obligations with quick assets (excluding inventory), also called the acid-test ratio.
Cash ratio
The most conservative liquidity ratio, measuring a company's ability to pay off current liabilities with only cash and cash equivalents.
Net working capital
A measure of a company's operational liquidity and short-term financial health, calculated as current assets minus current liabilities.
Cash flow to debt ratio
A coverage ratio that measures a company's ability to cover its debt with its operating cash flow, calculated as operating cash flow divided by total debt.