Liquidity ratio

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Liquidity Ratio may refer to:

  • Reserve requirement, a bank regulation that sets the minimum reserves each bank must hold.
  • Acid Test (Liquidity Ratio), a ratio used to determine the liquidity of a business entity.

Liquidity ratio, expresses a company's ability to repay short-term creditors out of its total cash. The liquidity ratio is the result of dividing the total cash by short-term borrowings. It shows the number of times short-term liabilities are covered by cash. If the value is greater than 1.00, it means fully covered.

The formula is the following:

LR = liquid assets / short-term liabilities.

See also

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