Liquidity of funds means the availability of liquid cash to meet the immediate commitments. It helps in analyzing the liquidity position of the firm .Furthermore; we can assess the liquidity of the firm by liquidity ratios. These ratio analyses short term immediate financial position of a business organization & immediate ability the firm to meet its short term commitments. The (current liability) out of its short term resource (current assets). That is also known as solvency ratio which helps the firm to meet its immediate obligations promptly.
It measures the relationship between the Quick assets & Quick liabilities.
The quick ratio or liquid ratio is calculated by dividing Quick assets by Quick liabilities.
Quick Ratio = Quick Assets &
C.R. = C.A.
It is more of qualitative concept. This ratio is the true test of business or firms solvency & liquidity position & this will indicate the inventory hold-ups when studied along with the current ratio.
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