explain why a financial institution or investor be interested in liquidity ratios

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Expert Solution

A financial Instutution or an investor generally keep interest in the liquidity position of the company because with the help of liquidity measures, one can understand the short term solvency of the organization and availability of short term funds to meet the short term liabilities of the company. A high level of liquidity is always preferred because it provides a cushion for the payment of short term liabilities. Various measures are used to measure the degree of liquidity in the organization like Current ratio, quick ratio, cash ratio etc.

With the help of liquidity ratio one can check the short term solvency of the organization and its ability to meet out short term expenses and liabilities.

ekkarill92 answered 1 year ago

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