Liquidity ratios are commonly used in the business community.
Creditors are interested in liquidity ratios as they demonstrate a debtor’s ability to quickly generate cash needed to pay debt on time. Liquidity ratios are also called working capital ratios, or working capital — as that is what they measure.
Often liquidity ratios are examined by banks when they evaluate loan applications. Once you get the loan, your lender may require you continue to maintain a certain minimum as part of the loan agreement.
