This ratio reflects the availability of existing resources to meet a sudden decline in revenue. Expendable fund balances should increase in proportion to the rate of growth of operations in order to provide a constant margin of protection against adverse financial contingencies.
Liquidity refers to an entity's ability to meet future obligations as they mature.
A commonly used measure of short-term solvency is the current ratio. The current ratio is computed by dividing current assets by current liabilities. The current ratio has improved from 2.1 to 1 in 1991 to 2.4 to 1 in 1995. The immediate effect of the ARC Plan was to freeze further participation in the postretirement medical benefit plan and reduce the rate of growth of the postretirement medical benefit liability resulting from employees choosing the ARC plan. The freezing of the postretirement medical benefit plan is expected to save USNH millions of dollars over the next few decades.