Liquidity Position

With the help of ratio analysis conclusions can be drawn regarding the liquidity position of a firm. The liquidity position of a firm would he satisfactory if it is able to meet its current obligations when they become due. It firm can be said to have the ability to meet its short-term liabilities if it has sufficient liquid fund, to pay the interest on its short-maturing debt usually within a year as well as to repay the principal. This ability is reflected in the liquidity ratios of a firm. The liquidity ratios are particularly useful in credit analysis by banks and other suppliers of short-term loans.

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