Question

37. Which of the following ratio is useful in assessing the liquidity (i.e., the ability of a company to pay its current liabilities using current assets) of a company?

Select one:

a. debt ratio

b. current ratio

c. inventory turnover rate

d. gross margin ratio

Answer 1

Answer = b. current ratio

Note:

1. The current ratio measures the ability of the firm to repay its short term obligations or current liabilities by using its current assets.

2. Debt Ratio measures the assets that are financed by external liabilities.

3. Inventory Turnover Rate is an assets management ratio and it measures the efficient use of inventory

4. Gross margin ratio measures the amount of profit left after meeting the day to day expenses of operations.