2 Types of Liquidity Ratio Current Ratio. There’s more than one type of liquidity ratio that determines the financial health of a banking institution. In this article, we will consider some commonly used liquidity ratios used in the financial analysis of a company. Quick Ratio; The quick ratio is also called acid test ratio. Liquidity ratios are very useful for analyzing liquidity position of the company. They want to determine the risk level involved in giving short term credit to the business. Definition, Explanation and Use: Liquidity ratios determine the ability of a business to finance, its day to day operations, or in other words, to pay its debts as they become due out of its current or liquid resources.. Trade payables and short term lenders are more interested in these ratios. Liquidity is required for a business to meet its short term obligations. Understanding the Two Types of Liquidity Ratios. Types of Liquidity Ratios. USES OF LIQUIDITY RATIOS. Liquidity Ratios consist of Current Ratio (Also known as Working Capital Ratio), Quick Ratio (Also known as Acid Test), Operating Cash Flow Ratios, and solvency ratio. It is a liquidity ratio that measures the capability of a business for payment of its current liabilities with only current assets when they come due. Ratio Analysis: Type # 4. A balance sheet is provided as an example for calculating a company's financial position by measuring its liquidity, which is the ability to pay its current debt with its current assets. Analysts compare the liquidity ratios of one firm to another firm or the industry for comparative analysis. Therefore, the above analysis suggests that liquidity analysis is an important tool to measure the short-term solvency of a company. Each of them deserves close attention: 1. So, let’s understand what are the types of liquidity ratios … There are many variety ratios including current ratio, quick ratio, defensive interval ratio, cash ratio, and working capital ratio. They are very useful to short-term creditors or lenders. The current ratio tells a company’s ability to pay off the debt obligations. These ratios are used externally as well as internally for analysis. Liquidity Ratios. Liquidity is a very critical part of a business. Here are the types of liquidity ratios. These ratios can be divided into two broad categories: (A) Liquidity Ratios (B) Stability Ratios. (A) Liquidity Ratios: Current ratio is the type of liquidity ratio that measures the company’s ability to pay its short term liability by comparing the current assets, which the company can convert to cash within one year, to its current liabilities which … Liquidity Ratios: Liquidity ratios are the group of financial ratios that measure entity financial ability to pay its short term debit. 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