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Questions and Answers
Which liquidity ratio measures a company's ability to meet its short-term obligations using its most liquid assets?
Which liquidity ratio measures a company's ability to meet its short-term obligations using its most liquid assets?
- Return on Assets
- Quick Ratio (correct)
- Debt-to-Equity Ratio
- Current Ratio
Which liquidity ratio excludes inventory from current assets in assessing a company's ability to cover short-term liabilities?
Which liquidity ratio excludes inventory from current assets in assessing a company's ability to cover short-term liabilities?
- Debt Ratio
- Acid-Test Ratio (correct)
- Working Capital Ratio
- Cash Ratio
Which liquidity ratio indicates the proportion of a company's short-term debt that could be paid off immediately with its liquid assets?
Which liquidity ratio indicates the proportion of a company's short-term debt that could be paid off immediately with its liquid assets?
- Cash Conversion Cycle
- Cash Ratio (correct)
- Operating Cash Flow Ratio
- Interest Coverage Ratio
What liquidity ratio compares a company's current assets to its current liabilities, indicating its ability to cover short-term obligations?
What liquidity ratio compares a company's current assets to its current liabilities, indicating its ability to cover short-term obligations?
Which liquidity ratio measures the efficiency of a company's cash flow in covering its short-term liabilities?
Which liquidity ratio measures the efficiency of a company's cash flow in covering its short-term liabilities?
Which liquidity ratio compares a company's current assets to its current liabilities, excluding inventory?
Which liquidity ratio compares a company's current assets to its current liabilities, excluding inventory?
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Study Notes
Liquidity Ratios
- The Quick Ratio measures a company's ability to meet its short-term obligations using its most liquid assets, excluding inventory.
- The Debt-to-Equity Ratio measures a company's long-term debt in relation to its shareholder equity, but it is not a liquidity ratio.
Liquidity Ratio Exclusions
- The Acid-Test Ratio (also known as the Quick Ratio) excludes inventory from current assets in assessing a company's ability to cover short-term liabilities.
Cash-Based Liquidity Ratios
- The Cash Ratio indicates the proportion of a company's short-term debt that could be paid off immediately with its liquid assets.
Current Assets and Liabilities
- The Current Ratio compares a company's current assets to its current liabilities, indicating its ability to cover short-term obligations.
Cash Flow Efficiency
- The Operating Cash Flow Ratio measures the efficiency of a company's cash flow in covering its short-term liabilities.
- The Cash Conversion Cycle measures the length of time it takes for a company to generate cash from its sales and pay its debts.
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