STEP 1: Picture the Problem Liquidity ratios are used to address a very basic question about the firm's financial health: How liquid is the firm? A business is financially liquid if it is able to pay its bills on time. We can assess a firm's overall liquidity by comparing its current (liquid) assets to its current (short-term) liabilities. The most commonly used measure of a firm's overall liquidity is the current ratio, which is defined as follows: Current Ratio equals StartFraction Current Assets Over Current Liabilities EndFraction STEP 2: Decide on a solution strategy We can use the Current Ratio expression above in order to solve for Mitchem Marble Company's current liability by using the company's current ratio and current assets. After calculating the firm's current liabilities, we can set the current ratio to the desired value and find the amount of receivables and inventories (and corresponding short-term debt) that the company can handle. That amount is found by solving for Upper X in the following expression: Current Ratio equals StartFraction Current Assets plus Upper X Over Current Liabilities plus Upper X EndFraction pop-up content ends