#19 most important Financial ratios for investors: Reading the financial reports of a company can be a very tedious job. Why Is Liquidity Ratio Important?. Known as a liquid asset, these possessions can be turned into cash quickly. Ratio Analysis is important for the company in order to analyze its financial position, liquidity, profitability, risk, solvency, efficiency, and operations effectiveness and proper utilization of funds which also indicates the trend or comparison of financial results that can be helpful for decision making for investment by shareholders of the company. There are three primary liquidity ratios that credit analysts and investors use to begin an in-depth financial analysis of a company. Known as a liquid asset, these possessions can be turned into cash quickly. The annual reports of many of the company are over 100 pages which consist of a number of financial jargons.
general liquidity ratio, intermediar liquidity ratio, fast liquidity ratio, acid test, their indicated values, the importance of using the quick-selling value in calculating the ultimate liquidity ratios, the connection of this ratios with the economic Current Ratio: The most popular Liquidity Ratio that we normally see in any liquidity assessment and measurement. Liquidity not only helps ensure that a person or business always has a reliable supply of cash close at hand, but it is a powerful tool when it comes to determining … Liquidity is an important term to understand in investing, and it describes the ability to exchange an asset for cash. They are the current, quick and cash ratios.

Three liquidity ratios are used for this purpose, including the current ratio, the quick ratio and the capital ratio. Importance and Uses of Ratio Analysis. Importance of Liquidity: It has already been stated above that liquidity means one’s ability to meet current claims and obligations as and when they become due.

Liquidity is typically measured using the current ratio, quick ratio, and operating cash flow ratio. In order to maintain the liquidity position firms convert their assets into cash. All three measure a company's ability to meet its short-term obligations based on …
The importance of liquidity cannot be ignored. The current ratio is calculated by Current Assets/Current Liabilities.. Current Ratio is measure how the company’s current assets which normally include Inventories, Receivable, Cash and Cash Equivalents would cover Current Liabilities.

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