1. Current Ratio: Current assets divided by current liabilities. It measures the ability of a company to pay off its short-term obligations using its current assets.
2. Quick Ratio or Acid-Test Ratio: (Current assets - inventory) divided by current liabilities. This ratio measures a company's ability to meet its short-term obligations without having to sell its inventory.
3. Cash Ratio: Cash and cash equivalents divided by current liabilities. This ratio measures a company's ability to pay off its short-term liabilities using its most liquid assets.
4. Operating Cash Flow Ratio: Operating cash flow divided by current liabilities. This ratio measures a company's ability to pay off its short-term obligations using its operating cash flows.
5. Working Capital Ratio: Current assets minus current liabilities. This ratio measures the amount of capital a company has left to fund its operations after paying off its short-term obligations.
6. Net Working Capital Ratio: (Current assets minus current liabilities) divided by total assets. This ratio measures the ability of a company to meet its short-term obligations using its current assets in relation to its total assets.
7. Cash Conversion Cycle (CCC): Days inventory outstanding plus days sales outstanding minus days payable outstanding. This ratio measures the time it takes for a company to convert its inventory into cash after a sale has been made, minus the time it takes to pay its suppliers.
Types of liquidity ratios
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