- Liquidity ratios (38): Ability to pay short-term obligations
- Current ratio(39): best known measure of liquidity
- Higher → more likely to pay short-term bill
- Less than one → facing a liquidity crisis as working capital is negative
- Quick ratio (40): Does not include inventories and other assets that not very liquid
- Cash ratio(41): most convervative liquidity
- Defensive interval ratio (DIR) (42)
- Average daily expenditure = (annual operating expenses – non-cash charges) / 365
- Number of days of average cash expenditures the firm could pay with current liquid asset:
- Expenditures include costs of goods, SG&A, research and development
- Cash conversion cycle (43): Length of time to turn cash’s investment in inventory back into cash
- High cash conversion cycles are considered undesirable
- Current ratio(39): best known measure of liquidity
