Liquidity Ratios Explained: Current, Quick & Cash Ratio
Warren Team
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Key terms
- LiquidityHow easily an asset can be bought or sold without significantly affecting its price. Stocks with high trading volume are highly liquid; real estate is relatively illiquid.
- Cash FlowThe net amount of cash moving in and out of your accounts. Positive cash flow means you're earning more than you're spending, while negative cash flow indicates you're spending more than you earn.
- Debt-to-Income Ratio (DTI)The percentage of your gross monthly income that goes toward paying debts. Lenders use DTI to assess your ability to manage monthly payments and repay borrowed money.
- Expense RatioThe annual fee that all funds or ETFs charge their shareholders, expressed as a percentage of assets. Lower expense ratios mean more of your money is invested rather than going to fees.
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