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Liquidity ratios

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Definition of Liquidity ratios

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Liquidity ratios

ratios that measure a firm's ability to meet its short-term financial obligations on time.


Liquidity ratios

ratios that measure a firm's ability to meet its short-term financial obligations on time.



Related Terms:

Accounting liquidity

The ease and quickness with which assets can be converted to cash.


Asset activity ratios

ratios that measure how effectively the firm is managing its assets.


Capitalization ratios

Also called financial leverage ratios, these ratios compare debt to total capitalization
and thus reflect the extent to which a corporation is trading on its equity. Capitalization ratios can be
interpreted only in the context of the stability of industry and company earnings and cash flow.


Common stock ratios

ratios that are designed to measure the relative claims of stockholders to earnings
(cash flow per share), and equity (book value per share) of a firm.



Coverage ratios

ratios used to test the adequacy of cash flows generated through earnings for purposes of
meeting debt and lease obligations, including the interest coverage ratio and the fixed charge coverage ratio.


Customary payout ratios

A range of payout ratios that is typical based on an analysis of comparable firms.


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Feasible target payout ratios

Payout ratios that are consistent with the availability of excess funds to make
cash dividend payments.


Financial leverage ratios

Related: capitalization ratios.


Leverage ratios

Measures of the relative contribution of stockholders and creditors, and of the firm's ability
to pay financing charges. Value of firm's debt to the total value of the firm.


Liquidity

A market is liquid when it has a high level of trading activity, allowing buying and selling with
minimum price disturbance. Also a market characterized by the ability to buy and sell with relative ease.


Liquidity

A measure of the ability of a business to pay its debts as they fall due – see also working capital.


Liquidity

A term that means nearness to cash; the closer an asset is to becoming cash or a liability is to using cash, the more liquid that asset or liability is.


Liquidity

The ease with which assets or securities can be sold for cash on
short notice at a fair price


liquidity

Ability of an asset to be converted to cash quickly at low cost.


Liquidity

Ease with which an asset can be sold on short notice at a fair price.


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Liquidity

The degree to which an asset can be cheaply and quickly turned into money.


Liquidity Crisis

Situation in which a firm is unable to meet due bills; a period of "technical insolvency".



Liquidity diversification

Investing in a variety of maturities to reduce the price risk to which holding long
bonds exposes the investor.


Liquidity preference hypothesis

The argument that greater liquidity is valuable, all else equal. Also, the
theory that the forward rate exceeds expected future interest rates.


Liquidity premium

Forward rate minus expected future short-term interest rate.


Liquidity risk

The risk that arises from the difficulty of selling an asset. It can be thought of as the difference
between the "true value" of the asset and the likely price, less commissions.


Liquidity theory of the term structure

A biased expectations theory that asserts that the implied forward
rates will not be a pure estimate of the market's expectations of future interest rates because they embody a
liquidity premium.


Market value ratios

ratios that relate the market price of the firm's common stock to selected financial
statement items.


profit ratios

ratios based on sales revenue for a period. A measure of
profit is divided by sales revenue to compute a profit ratio. For example,
gross margin is divided by sales revenue to compute the gross margin
profit ratio. Dividing bottom-line profit (net income) by sales revenue
gives the profit ratio that is generally called return on sales.


Profitability ratios

ratios that focus on the profitability of the firm. Profit margins measure performance
with relation to sales. Rate of return ratios measure performance relative to some measure of size of the
investment.


Rate of return ratios

ratios that are designed to measure the profitability of the firm in relation to various
measures of the funds invested in the firm.


Reserve ratios

Specified percentages of deposits, established by the Federal Reserve Board, that banks must
keep in a non-interest-bearing account at one of the twelve Federal Reserve Banks.



Restricted Liquidity

Inability of an individual/company to convert an asset into cash or cash equivalent without significant cost.


Short-term solvency ratios

ratios used to judge the adequacy of liquid assets for meeting short-term
obligations as they come due, including
1) the current ratio,
2) the acid-test ratio,
3) the inventory turnover ratio, and
4) the accounts receivable turnover ratio.



 

 

 

 

 

 

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