Question

Which one of the following ratios is a measure of a firm's liquidity? Group of answer...

Which one of the following ratios is a measure of a firm's liquidity?

Group of answer choices

Return on assets

Current ratio

Asset turnover

Net profit margin

Debt-equity ratio

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Answer #1

Solution

Answer- Current ratio

Liquidity ratios are used to measure a debtors capacity to meet its current debt obligations.Thus more liquid the assets are more safer will a businnes be to pay off its curent debt obligations

Four commonly used liquidity ratios are

Current ratio,Acid test ratio,Cash ratio and Operating cash flow ratio

Current ratio-Currwent assets/Current liabilities.Thus more the value of the ratio the more comfortable is the business to pay off iths current debt obligations

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