Financial ratios are relationships between two financial statement numbers and are often used in analyzing and...

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Accounting

Financial ratios are relationships between two financialstatement numbers and are often used in analyzing and describing acompany's performance. Liquidity is a measure of a company’sability to pay their short-term obligations as they come due.Select and define two ratios and explain how they could be used todescribe a company's liquidity.

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Liquidity ratios are the ratios that measure the ability of a company to meet its short term debt obligations These ratios measure the ability of a company to pay off its shortterm liabilities when they fall due The liquidity ratios are a result of dividing cash and other liquid assets by the short term borrowings and current liabilities They show the number of times the short term debt obligations are covered by the cash and liquid assets If the value is greater than 1 it means the short term obligations are fully covered Generally the higher the liquidity ratios are the higher the margin of safety that the company posses to meet its current liabilities Liquidity ratios greater than 1 indicate See Answer

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