In corporate finance, liquidity ratios measure the level of assets that can be quickly and cheaply converted into cash and their proportion to the firm’s short-term obligations. Because the book value of liquid assets is usually reliable, liquidity ratios allow investors to get a picture of a firms’ liquidity position. The most widely used liquidity ratios are the current ratio, the quick ratio and the cash ratio. In these three ratios, the denominator is the level of current liabilities. The current ratio is simply the ratio of current assets to current liabilities. Because some current assets are closer to cash than others, inventory is subtracted from the numerator (of the current ratio) when calculating the quick ratio, which is also known as the ‘acid test’. Finally, the cash ratio is even more stringent, as it only includes cash and marketable securities in the numerator. While investors generally applaud firms with strong liquidity ratios, an excess of liquidity can indicate sloppy use of capital.