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An accountant uses the liquidity ratio as a way to "measure and show a business' ability to meet short-term obligations when they must be paid," (p.528). Current and acid ? test are two commonly used liquidity ratios. Current ratio "compares current assets and liabilities, giving manager's information about the business' ability to pay off its current debts as they mature," (p. 528). Basically the current ratio compares all current assets and liabilities. To find current ratio you must take current assets divided by current liabilities. Acid ? test ratio "measures the ability of a business to meet its debt payments on short notice, comparing quick assets against current liabilities," (p...
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