ratios measure a company's ability to turn assets into cash to pay its short-term debt.

Ratios that measure a company’s ability to turn assets into cash to pay its short-term debt are known as liquidity ratios. These ratios are crucial for assessing a company's financial health and its ability to meet its short-term obligations. The two most common liquidity ratios are the current ratio and the quick ratio.

1. Current Ratio: This ratio compares current assets to current liabilities. It is calculated as: $\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}$ A current ratio greater than 1 indicates that the company has more current assets than current liabilities, which suggests that it can meet its short-term obligations.

2. Quick Ratio: Also known as the acid-test ratio, this measures a company’s ability to meet its short-term obligations with its most liquid assets. It excludes inventory from current assets and is calculated as: $\text{Quick Ratio} = \frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}}$ A quick ratio greater than 1 is typically viewed as a good sign of liquidity.

Both ratios provide valuable insights into a company's cash management and financial stability, especially in times of economic uncertainty. Evaluating these ratios will help investors, creditors, and analysts in making informed decisions regarding the company's financial situation.