Liquidity Ratios
Definition
A family of ratios — current, quick and cash ratios — that measure a business's ability to meet short-term obligations from its short-term assets. They are early warning signs of cash trouble.
Related Terms in Financial Analysis
Solvency Ratios
Ratios such as the debt ratio, gearing and interest coverage that assess whether a business can meet its long-term obligations and survive beyond the short term. They focus on capital structure and debt capacity.
Profitability Ratios
Ratios such as gross margin, operating margin, net margin, ROE and ROA that measure how effectively a business turns revenue and resources into profit. They are the core of performance analysis.
Efficiency Ratios
Ratios such as inventory turnover, asset turnover and receivables turnover that measure how well a business uses its assets and manages its working capital to generate sales.
DuPont Analysis
A framework that breaks return on equity into profit margin, asset turnover and financial leverage, revealing which of the three is really driving — or dragging — a company's return on equity.
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