Asked by Deangelo Johnson on May 29, 2024
Verified
A liquidity ratio measures the
A) income or operating success of an enterprise over a period of time.
B) ability of the enterprise to survive over a long period of time.
C) short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash.
D) number of times interest is earned.
Liquidity Ratio
A financial metric used to determine a company's ability to pay off its short-term debts obligations with its liquid assets.
Maturing Obligations
Debts or other obligations that are nearing their due date for payment or completion.
Operating Success
A measure of a company's ability to generate profit from its regular business operations.
- Master the concept of, and differentiate among, several liquidity ratios and their significance for the short-term financial health of a company.
Verified Answer
ZK
Zybrea KnightJun 03, 2024
Final Answer :
C
Explanation :
A liquidity ratio measures the ability of the enterprise to pay its maturing obligations and meet unexpected needs for cash in the short-term. It does not measure income or operating success over a period of time, nor does it measure the ability of the enterprise to survive over a long period of time. The number of times interest is earned is measured by an interest coverage ratio.
Learning Objectives
- Master the concept of, and differentiate among, several liquidity ratios and their significance for the short-term financial health of a company.