Liquidity measures how easily an asset becomes cash at a fair price or how readily a company can pay its obligations. Shares are generally more liquid than factories, machinery, or other unique physical assets because they can be sold more easily. section 1.2.9 section 2.1.2
Assess company liquidity with two balance-sheet ratios:
- Current ratio = current assets ÷ current liabilities; it measures coverage of short-term liabilities. section 2.4.1
- Quick ratio uses cash, marketable securities, and receivables while excluding inventory, making it the more stringent test. section 2.4.1
- Compare ratios within peer groups rather than across sectors, because business models and inventory needs differ. section 2.4.1
Peer and sector comparison
Data collected with yfinance on June 8, 2025 showed NVIDIA with a 3.388 current ratio and 2.857 quick ratio, while Walmart recorded 0.780 and 0.185. Among discount stores, Costco’s 1.015 current ratio and 0.472 quick ratio exceeded Walmart’s, though one ratio category alone should not determine an investment decision. section 2.4.1
Assets = Liabilities + Shareholders’ equity
Use the balance-sheet identity to relate assets, liabilities, and shareholder equity before interpreting liquidity. section 2.1.2
