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
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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