There are different techniques which can be utilized in order to measure performance in

any organization. Some of the performance measuring tools are numerical while some of them

are non numerical. One of the most significant objectives behind using performance

measurement tools is to analyze the performance of the organization to make sure that

formulated goals and objectives are achieved accordingly. Performance of the organization and

employees is also measured in order to analyze overall performance of organization and

employees working in the organization. Different tools can be utilized for performance

measurement for analyzing efficiency and effectiveness prevailing in the organization.

Effectiveness is associated with extent to which organization is achieving formulated goals and

objectives. Efficiency in the organization is associated with utilization of available resources in

order to generate maximum output.

There is different measurement tools use by organizations around the globe like balanced

scorecard, economic resource planning, financial analysis, ratio analysis, and other related

measurement techniques. One of the most significant measurement techniques for measuring the

performance related to liquidity in organization is liquidity ratios. Liquidity ratios are calculated

in order to measure the liquidity position of the company. Different types of liquidity ratios can

be utilized for this objective like current ratio, quick ratio, and day’s sales outstanding. Current

ratio is considered to be one of the most significant liquidity ratios and is used by most of the

organizations in order to measure liquidity position.

Current ratio is simply calculated by dividing current assets of the company with current

liabilities of the company available in statement of financial position. Primary objective of

current ratio is to investigate the strength of the company to pay its short-term liabilities by

utilizing its short-term available resources and assets. Liquidity ratios are associated with
investigation of short term obligations while solvency ratios are mostly utilized for analyzing the

long-term applications of the organization.

Liquidity is considered to be ability of the organization in order to convert its current

assets into cash quickly. Liquidity ratios are considered to be useful for the organization when

they are utilized in comparative manner. This analysis can be conducted internally in the

organization or externally. It is always advised to have current ratio more than 1 which suggests

that company have enough liquid resources which can be utilized in order to meet its short term

obligations. Higher the current ratio, the better is the liquidity position of the company.