Current Ratio:
$$ \text{Current Ratio}= \text{Current Assets}/\text{Current Liabilities}
$$
Explanation: The current ratio measures a company's ability to cover its short-term obligations with its short-term assets. It includes all current assets such as cash, accounts receivable, and inventory.
Quick Ratio (Acid-Test Ratio):
$$ \text{Quick Ratio}=\text{Cash + Marketable Securities + Accounts Receivable}/\text{Current Liabilities} $$
Explanation**:** The quick ratio is a more stringent measure of a company's short-term liquidity. It excludes inventory from current assets, focusing on the most liquid assets that can be quickly converted to cash.
These ratios provide insights into a company's short-term financial health and its ability to meet immediate financial obligations. A current ratio above 1 indicates that the company can cover its short-term liabilities, while a quick ratio above 1 suggests a higher level of liquidity without relying on slow-moving inventory.
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