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 pay off 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 cover short-term debts, while a lower ratio may signal potential financial difficulties. Investors and creditors often analyze these ratios to evaluate a company's risk and stability before making decisions regarding investments or lending.