To determine whether a company is capable of meeting its debt obligations when it becomes due, two liquidity ratios can be adapted as indexes. Two ratios are current ratio and quick ratio/acid-test ratio.
The current ratio is a liquidity ratio that’s used by investors to determine whether a company is capable of paying off all of its current liabilities using its current assets.
The quick ratio, on the other hand, is another liquidity ratio that’s typically used by investors to determine how efficient a company is at paying off all of its current liabilities using its current assets.
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