Liquidity ratios are used to give an estimate of the short term financial health of a firm. There are basically two major ratios which are used to assess the liquidity. These are quick ratio and current ratio. The current ratio is defined as the ratio of the current assets to the current liabilities. Quick ratio is calculating as the difference of the current assets and the inventory divided by the current liabilities. Ideally, the above two ratios should have a value greater than one. These ratios give an idea of the short term liquidity of the company (Penman, 2007).Another form of ratios known as solvency ratios is used to estimate the long term prospects of a company. The major ratios in this area consist of financial leverage, the debt ratio (which is given by debt divided by total assets), and the debt to equity ratio. The debt to equity ratio should be equal to a value less than one.