Ratios compare current assets to current liabilities to indicate the speed with which a company can turn its assets into cash to meet debts as they fall due.

Liquidity

Explanation:

Liquidity ratios are those ratios that meet the current debt obligations and converted into cash within one year. It includes current ratio, quick ratios, dales sales outstanding, etc

Current ratio = Total Current assets ÷ total current liabilities  

where,

The current assets include cash, stock, account receivable, etc

And, the current liabilities include accounts payable, salaries payable, et

Quick ratio = Quick assets ÷ total current liabilities  

where,  

Quick assets = Cash and cash equivalents + short-term investments + Accounts receivable (net)  

Day sale outstanding = (Beginning Accounts receivable + ending Accounts receivable) ÷ Net sales × number of days in a year

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