Liquidity ratios are financial metrics used to assess a company's ability to meet its short-term obligations. They measure how easily a company can convert its assets into cash to cover liabilities. Common liquidity ratios include the current ratio and the quick ratio, which provide insights into a company's financial health. A higher liquidity ratio indicates a stronger ability to pay off debts, while a lower ratio may signal potential financial trouble. Investors and creditors often analyze these ratios to evaluate a company's risk level and overall stability, making them essential tools in financial analysis and decision-making.