Liquidity ratios measure solvency from "summary" of Loose Leaf Finance with Connect Access Card by Troy Adair,Marcia Millon Cornett,John Nofsinger
Liquidity ratios are a key tool for assessing a company's financial health by measuring its ability to meet short-term obligations. Solvency, on the other hand, refers to a company's ability to meet its long-term obligations. While liquidity ratios do not directly measure solvency, they do provide valuable insights into a company's overall financial position. By analyzing liquidity ratios, investors and creditors can gauge a company's ability to pay off its current liabilities with its current assets. A high liquidity ratio indicates that a company has enough liquid assets to cover its short-term obligations, which is a positive sign for solvency. On the other hand, a low liquidity ratio may indicate that a company could struggle to meet its short-term obligations, raising concerns about its solvency in the long run. One of the most co...
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