Asked by Preston Tribble on May 22, 2024
Verified
An example of a liquidity ratio is
A) fixed asset turnover.
B) current ratio.
C) acid test or quick ratio.
D) fixed asset turnover and acid test or quick ratio.
E) current ratio and acid test or quick ratio.
Liquidity Ratio
A financial metric used to determine a company's ability to pay off its short-term debts with its current assets.
Current Ratio
Current assets/current liabilities. Measures the ability of the firm to pay off its current liabilities by liquidating current assets.
Acid Test
A stringent test that measures the liquidity of a company by calculating its quick assets (excluding inventory) against its current liabilities.
- Identify and calculate different financial ratios that indicate liquidity, profitability, and asset utilization.
Verified Answer
AA
Azmina AfiqahMay 24, 2024
Final Answer :
E
Explanation :
Liquidity ratios measure a company's ability to meet its short-term obligations. Both the current ratio and the acid test (or quick ratio) are examples of liquidity ratios. The current ratio compares current assets to current liabilities, and the acid test ratio refines this by excluding inventory and other less liquid current assets.
Learning Objectives
- Identify and calculate different financial ratios that indicate liquidity, profitability, and asset utilization.