Liquidity ratios compare current assets to current liabilities because it is assumed that current liabilities will be paid out of current assets.

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Liquidity ratios are designed to measure a company's ability to meet short-term obligations. By comparing current assets to current liabilities, it is assumed that current liabilities will be paid out of current assets, providing an indication of the company's ability to pay off immediate debts.

Liquidity Ratios Compare Current Assets to Current Liabilities Because It