Enter the cash & cash equivalents, marketable securities, accounts receivable, and current liabilities into the calculator to determine the liquidity ratio.
Liquidity Ratio Formula
The following formula can be used to calculate the liquidity of a company.
LR =(C + S + AR) / L
- Where LR is the liquidity ratio
- C is the cash and cash equivalents ($)
- S is the marketable securities value ($)
- AR is the accounts receivables ($)
- L is the total liabilities ($)
Liquidity Ratio Definition
A liquidity ratio is defined as the measure of how well positioned a company is to pay off it’s liabilities.
Liquidity Ratio Example
How to calculate liquidity ratio?
- First, determine the cash on hand.
Calculate the amount of cash and cash equivalents the business has on hand.
- Next, determine the marketable securities.
Calculate the value of all securities that could be sold in short notice.
- Next, determine the accounts receivable.
Measure the total accounts receivable for the year.
- Next, determine the total liabilities.
Calculate the total liabilities.
- Finally, calculate the liquidity ratio.
Using the formula presented above, calculate the liquidity ratio.
A liquidity ratio is a measure of how “liquid” a company is. Liquidity measures the ability of a company to pay off it’s current liabilities within one year. In other words, the ability of a company to meet short term financial obligations.
In a sense, yes, the quick ratio formula is used to calculate the liquidity ratio.
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