What is the definition of A Liquidity Ratio?

A liquidity ratio is a simple ratio measuring liquidity, i.e. the ability of a company to meet its short-term debt obligations. It is used to assess how well the company can use its short-term liquid assets (cash, short-term securities, inventory etc.) to meet its short term debts (Revolver, Accounts Payable etc.).

The calculation for liquidity ratio is:

• Current Assets / Current Liabilities