Is the Liquidity Ratio Important in Business?

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In the business world, economic constraints and uncertainties such as crises, market fluctuations, and so on often disrupt business operations. Therefore, it's crucial for businesses to anticipate and maintain a liquidity ratio, which measures the business's ability to pay short-term debts and expenses. In practice, the liquidity ratio is often combined with the solvency ratio (to measure the business's long-term ability), so investors or business owners can grasp the full financial picture of the business.

A poor liquidity ratio is less than 1.
An ideal/good liquidity ratio is above 1 to 2.
A liquidity ratio above 2 often indicates business inefficiency.