Liquidity ratio
Encyclopedia
Liquidity Ratio may refer to:
  • Reserve requirement
    Reserve requirement
    The reserve requirement is a central bank regulation that sets the minimum reserves each commercial bank must hold of customer deposits and notes...

    , a bank regulation that sets the minimum reserves each bank must hold.
  • Acid Test (Liquidity Ratio), a ratio used to determine the liquidity of a business entity.


Liquidity ratio, expresses a company's ability to repay short-term creditors out of its total cash. The liquidity ratio is the result of dividing the total cash by short-term borrowings. It shows the number of times short-term liabilities are covered by cash. If the value is greater than 1.00, it means fully covered.

The formula is the following:

LR = liquid assets / total assets.
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