what does a low liquidity ratio means that quizlet
Liquidity is the ability of a business to meet its short-term financial obligations. Several common liquidity ratios are used to measure a business's overall financial picture. By measuring liquidity, you can potentially take proactive actions to avoid getting overwhelmed with debt and expenses. Importance of Liquidity. To generate profit, a business must bring in more than enough revenue to cover its fixed and variable costs. High liquidity means that you have a relatively strong cash and current accounts position, which means that you can easily cover short-term debt obligations. Low liquidity means you have limited capacity to cover your short-term debts with existing cash and current assets.