Financial ratios that examine if an organization can pay short term liabilities and debts.
Two types: current ratio and acid test ratio
Current ratio
Acid ratio
- finish notes on this
- Liquidity crisis: a business that can’t pay it’s short term debts (they could go bankrupt!)
- 1:1 ratio is minimum good ratio for current ratio (you have enough money to pay off your assets)
- acid test ratio is the same as current ratio, but it assumes you don’t want to sell your stocks