Liquidity (Global)
Availability of cash/liquid assets; ability to meet obligations.
Formula
Current Ratio = Current Assets / Current Liabilities
Real World
During the 2008 financial crisis, global credit markets froze and banks like Lehman Brothers collapsed partly because they could not access liquid assets quickly enough to meet short-term obligations.
Exam Focus
A current ratio below 1 signals a liquidity problem; always interpret the ratio in context rather than stating it is simply 'good' or 'bad'.
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