Meaning and examples
Liquidity ratios compare selected short-term resources with near-term obligations. The current ratio uses a broad base of current assets; the quick ratio excludes less accessible items, often inventory. The formula’s composition must be disclosed before comparison. With current assets of 300 and obligations of 200, the current ratio is 1.5, but overdue receivables and restricted cash may reduce actual payment capacity. A static ratio does not show the timing of receipts and payments and does not establish a universal safety threshold.
How to avoid a mistake
For example, with inventory of 120, the quick ratio (300 − 120) / 200 equals 0.9. It excludes inventory, but does not prove that receivables will be collected on time. Ratios calculated on the same basis should be compared with the business model, seasonal timing and cash calendar, not with a single standard for all industries. More on working capital: [the educational analysis](/guides/working-capital/).
Sources and review boundaries
Support: **gl-acca-ratios**. The example is editorial. Sources check the concept, but do not confirm the reliability of anyone’s financial statements or the suitability of a decision for a particular investor.