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This question is about employer.
What is a good liquidity ratio for a company?
A good liquidity ratio for a company is anything higher than 1. Having said that, a liquidity ratio of 1 is unlikely to prove that your business is worthy of investment. Most creditors and investors look for an accounting liquidity ratio of 2 or 3.
Essentially, a liquidity ratio is a financial metric used to measure a business's ability to pay off their debts when they're due. In other words, it indicates whether a company's current assets are sufficient to cover their liabilities.
- Low Liquidity Ratio - the company faces a negative working capital and can be experiencing a liquidity crisis.
- High Liquidity Ratio - the company has a more significant margin of safety with regard to its ability to pay off debt obligation.
There are different types of liquidity ratios, including:
- Current Ratio = Current Assets / Current Liabilities
- Quick Ratio = (Cash and Cash Equivalents + Marketable Securities + Accounts Receivable) / Current Liabilities
- Cash Ratio = (Cash and Cash Equivalents + Short-Term Investments) / Current Liabilities
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