What type of ratio is used to measure a company's ability to meet its short-term financial obligations, specifically focusing on its ability to convert assets into cash to cover current liabilities?
Liquidity ratios assess a company's capacity to meet its short-term obligations using its most liquid assets. These ratios, such as the current ratio and quick ratio, provide insight into the financial health of a company by indicating whether it has sufficient resources to pay off its immediate liabilities without raising external capital.
Exact Extract from Study Guide:
"Liquidity ratios: − Typical ratios: current ratio, quick ratio, cash flow ratio, etc. − Formulae of those ratios − Implications of liquidity ratios
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