Liquidity Ratios

The liquidity ratio determines the ability of a company to meet their immediate liability and thereby establishes their level of solvency (Brigham and Houston 2009, pg 87). Two ratios are considered on the determination of liquidity.

The first is the current ratio whose sole aim is to identify the ability of the corporation to pay off their immediate debts. The calculation of current ratio is to do by identifying a ratio analysis of current liabilities and assets. Any company is established to have a healthy current ratio if the ratio is 2:1 (Brigham and Houston 2009, pg 87).