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Which of the financial ratios listed in the text is considered the best measure of short-term...

Which of the financial ratios listed in the text is considered the best measure of short-term liquidity for a retail merchandising business and why?

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Answer #1

Quick Ratio is considered the best measure of short term liquidity for a retail merchandising business.

Quick ratio is calculated by dividing a company's current assets (other than Inventory and non cash current assets) by its current liabilities. Since Quick ratio limits the currect assets that can be used for recovery of current liabilities, quick ratio is a more accurate measurement of the immediate liquidity of a company. If a company is forced to liquidate its assets to pay its bills, companies with a higher quick ratio are forced to sell fewer assets.

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