A liability is a debt that a business owes. Liabilities are one of the five types of accounts and are shown on the balance sheet. They are included in the accounting equation where assets equal liabilities and equity.
Liquidity ratios are financial ratios that show a company’s ability to pay debts in the short term. Liquidity relates to the ease of converting an asset into cash. Liquidity ratios focus on a company’s balance sheet. The liquidity ratios are:
- working capital
- current ratio
- quick ratio
- cash ratio