Which of the following is the correct formula for the liquidity ratio?

(a) total net worth / total assets

(b) liquid assets / total current debts

(c) cash surplus / income after taxes

(d) total monthly loan payments / monthly gross income.

Answer: Option B

Explanation: Liquidity ratios are the ratios which are used by the investors to determine the ability of an organisation to repay its short term debts. In other words, it refers to the amount of current assets that an organisation have to repay its current liabilities.

These are calculated by dividing the liquid assets with current liabilities and is considered best to be at 1.

Hence the correct option is B.