Short-term liquidity risk is generally referring to company’s short-term ability to generate cash. This cash is required for day-to-day capital needs and also the current debt obligations. Whereas long-term solvency risk is also concerned with cash generation, however, the cash is needed for long-term debt re-payments, plant and equipment purchases.

The short-term liquidity can be measured with the following ratios:

1. Current Ratio = Current Assets / Current Liabilities
2. Quick ratio = (Cash + Receivables + Marketable Securities) / Current Liabilities
3. A/R Turnover = Net Sales / Average A/R
4. Days Receivables Outstanding = 365 / A/R Turnover
5. Inventory Turnover = Cost of Goods Sold / Average Inventory
6. Days Inventory Held = 365 / Inventory Turnover
7. Accounts Payable Turnover = Inventory Purchases / Average Accounts Payable
8. Days Accounts Payable Outstanding = 365 / Accounts Payable Turnover

The long-term solvency can be measured with the following ratios:

1. Long-term Debt to Assets = Long-term Debt / Total Assets
2. Long-term Debt to Tangible Assets = Long-term Debt / Total Tangible Assets
3. Interest Coverage = Operating Income Before Taxes and Interest / Interest Expense
4. Operating Cash Flow to Total Liabilities = Cash Flow from Operations / Avg Current Liabilities + Long-term Debt

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