Liquidity Ratios: Such ratios comprise the Current Ratio and the Quick Ratio or the acid test ratio. Liquidity ratios demonstrate the Liquid position of a company in the short term that is the capability of a firm to pay its obligations in short term.
• Current Ratio = Current Assets/Current Liabilities
• Quick Ratio = (Current Assets – Inventory)/Current Liabilities
Defensive Interval ratio is too a kind of efficiency ratio for liquidity which is computed as below:
Defensive Interval Ratio = Current Assets / Daily operational expenses.
The above ratio points out the ability of a company to operate without the long term assets or it can be state that how many days a company can operate only via the presence of current assets.