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Solvency or liquidity ratios

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Solvency ratios (sometimes called liquidity ratios) indicate how well your business can pay its bills in the short term without straining cash flows. As you can well imagine, your lenders are usually quite interested in the short-term solvency of your business. (They want to make sure they get their money back!) Some commonly calculated solvency ratios are:

• Current ratio

• Total debt ratio

Financial Management 101

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