Financial ratios are widely used to analyze a bank’s performance, specifically to gauge and benchmark the bank’s level of solvency and liquidity.

These financial ratios should be used before investing in the banks.

Liquidity and Solvency play an imperative role in the smooth survival of the banking sector.

These are some of the fundamental factors in the maintenance of the bank’s financial viability. This is a vital parameter on which a bank is analyzed.

Liquidity is the ability of a bank to increase the assets and meet obligations as and when they come due, without incurring any losses.

Solvency of the bank refers to the ability of the bank to meet long-term obligations as and when they arise.

In the most lucid way, solvency measures the long-term position of the bank, and liquidity measures the short-term position of the bank.

Both of these parameters are important for the banking sector to function smoothly.