CBSE Class 12-commerce Answered

Current and Liquid ratio both fall under the category of Liquidity ratios. These ratios show the ability of an enterprise to meet its short term financial obligations (or short term liabilities). 

In context of Current Ratio, it is shown by number of times current assets are of current liabilities and a higher current ratio signifies better liquidity position but a very high Current Ratio shows poor operation efficiencies.

 

And for Liquid Ratio, it shows a direct relation between cash or assets that can be easily converted into cash in very short period and the current liabilities. This is an indicator of short term debt paying capacity of an enterprise and an even better indicator of liquidity.