Measures the extent to which an insurer can quickly liquidate assets and cover short-term liabilities. Also known as cash asset ratio or cash ratio.
Liquidity ratios measure a business’s ability to meet payment obligations by comparing cash and near-cash with payment obligations. If the coverage of the latter by the former is insufficient, it indicates that the business might face difficulties in meeting its immediate financial obligations. This can, in turn, affect the company’s business operations and profitability.
A company’s liquidity ratio equals total current assets divided by total current liabilities.