Helps You Identify If
A business Liquidity Ratio is a means of understanding a company’s susceptibility to either current of future financial distress. It also helps build a risk profile of the business. But remember though that a single “safe” liquidity measure does not exist across all industries. Some industries traditionally and successfully trade at low liquidity levels, whereas for others, the same figure is a sign of distress.
How do you get your Liquidity Ratio? The Liquidity Ratio gives a relative measure of current liabilities compared to current assets. Strive for a figure greater than 1.5. This means that your accessible assets can easily offset your immediate liabilities.