What will you use to gauge the company’s liquidity – cash flow or income?

A firm's liquidity is determined by its ability to pay off its current debt with its current assets. Liquidity can be measured in the following ways:

• Calculate the current ratio of the company (Current Assets/Current Liabilities)
• Calculate the quick ratio (Current Assets-Inventory/Current Liabilities)
• Find the Net Working Capital of the company (Current Assets – Current Liabilities)

If you must choose between cash flow and income, it is a better idea to gauge the company's liquidity based on cash flow, as earnings are more reliable.