What do the liquidity Ratio mean

Question 1

What does the current ratio mean

Answer 1

Does the company have enough current resources to cover its current liabilities?

If ratio > 1 = Working Capital Liquidity is positive (Current asset > current liability)

If ratio < 1 = Working Capital Liquidity is negative (Current asset < current liability)

Question 2

What is quick ratio

Answer 2

Does the company have enough short-term resources without having to sell inventory to meet its short-term obligations?
Can short-term liabilities be paid without selling more inventory?

Question 3

What is cash ratio ( Acid test)

Answer 3

Does the company have enough short-term resources without having to sell inventory and collect trade receivables to cover its short-term liabilities?