What is absolute liquid ratio?

The absolute liquid ratio, also known as the liquid assets ratio, measures a company's ability to cover its short-term liabilities with its most liquid assets, typically cash and cash equivalents. It is calculated by dividing liquid assets by current liabilities. This ratio provides insight into a company's short-term financial health and liquidity position, indicating how easily it can meet obligations without relying on the sale of inventory or other less liquid assets. A higher ratio suggests a stronger liquidity position.