Q.What is liquidity ? What are the types of liquidity ratios ?

Liquidity is the ability of a business to meet its current (short-term) liabilities on time; the main liquidity ratios are the current ratio and the quick (liquid) ratio.

Meaning of liquidity

In the Tamil Nadu HSC Accountancy syllabus, liquidity refers to the ability of a firm to convert its assets into cash quickly and to pay off its short-term liabilities as and when they become due. High liquidity means the firm can comfortably meet its immediate obligations.

Types of liquidity ratios

1. Current ratio = Current assets / Current liabilities. It measures the overall short-term solvency; the ideal norm is 2 : 1. …