10.2.1—Liquidity ratios

The current ratio compares current assets with current liabilities; the acid-test ratio excludes inventory to focus on more liquid resources. Both are snapshots of short-term coverage.

A higher ratio may indicate protection but can also show idle cash or excess stock. Interpretation needs industry, timing, credit terms and trend.

A retailer with strong current assets mainly held as seasonal inventory may look liquid on the current ratio but weaker on the acid test.

No universal ratio proves safety; asset quality and when liabilities fall due matter.