Liquidity Ratio Singapore 2026: The Different Types and How to Read Them
A family of ratios that answer one urgent question — can this company pay its bills right now?
A liquidity ratio measures a company’s ability to meet its short-term financial obligations using its most readily available assets, with the three most common variants — the current ratio, quick ratio and cash ratio — each using a progressively stricter definition of what counts as a liquid, usable asset.
Not financial advice. All figures for educational reference only. Data as at October 2026.
- Liquidity ratio is an umbrella term covering the current ratio, quick ratio and cash ratio, each with a stricter view of what qualifies as a ‘liquid’ asset.
- The current ratio (Current Assets ÷ Current Liabilities) is the broadest measure; a ratio above 1.0x is generally considered acceptable, though industry norms vary.
- The quick ratio excludes inventory from current assets, since inventory can take time to convert to cash, giving a stricter view of immediate solvency.
- The cash ratio is the strictest version, counting only cash and cash equivalents against current liabilities, used when assessing worst-case liquidity scenarios.
- A declining liquidity ratio trend over several quarters, even if still above 1.0x, is often an earlier warning sign than a single weak reading.
Table of Contents
What Is Liquidity Ratio?
Liquidity ratios exist because not all assets on a balance sheet are equally easy to convert into cash to pay a bill due next month. Cash in the bank is instantly usable. Trade receivables usually take 30 to 90 days to collect. Inventory might take months to sell, and even then only at whatever price the market will pay, which may be less than its book value. Liquidity ratios account for this spectrum by using progressively stricter definitions of “available” assets.
The current ratio is the broadest and most commonly quoted, dividing all current assets (cash, receivables, inventory) by current liabilities. A ratio above 1.0x suggests a company has, on paper, enough current assets to cover its near-term obligations, though the quality of those assets matters enormously — a current ratio propped up by slow-moving or obsolete inventory is far weaker than it looks.
The quick ratio (sometimes called the acid-test ratio) strips out inventory entirely, leaving only cash, marketable securities and receivables against current liabilities — a more conservative and often more honest picture, particularly for businesses where inventory can be hard to sell quickly or is prone to obsolescence, such as electronics or fashion retail. The cash ratio goes further still, counting only cash and cash equivalents, representing the most conservative worst-case liquidity test.
How It Works in Singapore
Comparing the three liquidity ratios for a hypothetical SGX-listed electronics retailer, “TechMart Holdings”, FY2025:
| Item | SGD (millions) |
|---|---|
| Cash and equivalents | 10.0 |
| Trade receivables | 15.0 |
| Inventory | 35.0 |
| Total Current Assets | 60.0 |
| Total Current Liabilities | 45.0 |
| Current Ratio | 1.33x (60 ÷ 45) |
| Quick Ratio | 0.56x ([10+15] ÷ 45) |
| Cash Ratio | 0.22x (10 ÷ 45) |
TechMart’s current ratio of 1.33x looks comfortable at first glance, but its quick ratio of 0.56x reveals that once inventory is excluded, the company has barely half the liquid assets needed to cover current liabilities — a meaningfully different risk picture for an investor to consider, especially for an electronics retailer where unsold stock can become obsolete quickly.
Worked Example
A Singapore investor screening two retail REIT tenants for credit risk before investing in a REIT exposed heavily to that tenant finds Tenant X has a current ratio of 1.5x and a quick ratio of 1.4x (little inventory, mostly a services business), while Tenant Y has a current ratio of 1.5x but a quick ratio of only 0.5x (a large apparel retailer holding substantial seasonal inventory). Both tenants appear equally liquid on the current ratio alone, but Tenant Y’s liquidity is far more fragile once inventory risk is stripped out — relevant information for assessing the REIT’s rental income stability from that tenant.
Advantages
- Multiple layers of conservatism. Using the current, quick and cash ratios together gives investors a spectrum of liquidity assumptions rather than relying on a single, potentially misleading number.
- Fast red-flag screening. Liquidity ratios are simple to calculate and allow investors to quickly screen out companies at risk of short-term cash-flow stress.
- Useful for credit and counterparty risk. Investors assessing REIT tenants, bond issuers or trading counterparties can use liquidity ratios to gauge near-term default risk.
- Widely disclosed and standardised. All components are drawn directly from the balance sheet, making liquidity ratios consistently calculable across virtually every SGX-listed company.
Risks and Limitations
- Snapshot limitation. Liquidity ratios reflect a single balance-sheet date and can be temporarily flattered or weakened by timing of payments around quarter-end.
- Quality of receivables matters. A strong current or quick ratio can be misleading if a large share of receivables are overdue or unlikely to be collected in full.
- No single "right" threshold. What counts as an acceptable current ratio varies significantly by industry — a ratio of 1.0x might be fine for a utility with predictable cash flows but concerning for a cyclical manufacturer.
- Does not capture long-term debt risk. A company can show healthy liquidity ratios while carrying unsustainable long-term debt, which is better assessed through solvency ratios instead.
Current Ratio vs Quick Ratio
| Feature | Current Ratio | Quick Ratio |
|---|---|---|
| What it includes | Cash, receivables, inventory — all current assets | Cash, receivables, marketable securities only |
| Excludes inventory | No | Yes |
| Conservatism level | Least conservative | More conservative |
| Best used for | General liquidity screening across most industries | Industries with slow-moving or obsolescence-prone inventory |
| Formula | Current Assets ÷ Current Liabilities | (Current Assets − Inventory) ÷ Current Liabilities |
The Bottom Line
Liquidity ratios give Singapore investors a quick, standardised way to judge whether a company can cover its near-term obligations, but no single ratio tells the full story on its own. Using the current ratio, quick ratio and cash ratio together — and tracking the trend across several quarters rather than a single snapshot — gives a far more reliable read on short-term financial risk.
Related Terms:
Frequently Asked Questions
What is a liquidity ratio?
A liquidity ratio measures a company’s ability to meet its short-term financial obligations using its readily available assets, with the current ratio, quick ratio and cash ratio being the three most commonly used variants.
What is considered a good current ratio?
A current ratio above 1.0x is generally considered acceptable, meaning a company has more current assets than current liabilities, though the ideal level varies by industry and business model.
Why does the quick ratio exclude inventory?
The quick ratio excludes inventory because it can take time to sell and may not be converted to cash quickly or at full book value, giving a stricter and often more realistic view of immediate liquidity.
What is the difference between a liquidity ratio and a solvency ratio?
Liquidity ratios assess a company’s ability to pay obligations due within the next 12 months, while solvency ratios assess its ability to sustain and repay total debt over the long term — they measure different time horizons of financial risk.
How can investors use liquidity ratios when assessing SGX-listed companies?
Investors can calculate the current, quick and cash ratios from the balance sheet disclosed in quarterly results, and track the trend over several periods to spot early signs of deteriorating financial health before it becomes a larger problem.
Disclaimer: This glossary entry is for educational purposes only and does not constitute financial advice. Data sourced from official regulator and industry websites as at October 2026.