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Liquidity ratios assess an organization's ability to meet short-term obligations. The acid-test ratio is a liquidity ratio that measures a company's ability to cover current liabilities with its most liquid assets. Other ratios mentioned are not categorized as liquidity ratios.
Liquidity ratios focus on an organization's ability to meet short-term obligations using liquid assets. One example of a liquidity ratio is the acid-test ratio, which measures a company's ability to cover its current liabilities with its most liquid assets like cash and marketable securities.
The acid-test ratio is calculated by dividing current assets minus inventory by current liabilities. It is essential for assessing a company's short-term financial health.
By comparison, the debt to owners' equity ratio, basic earnings per share, and inventory turnover ratio are not classified as liquidity ratios but serve other financial analysis purposes.
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