Which one of the following statements is true?
A)Liquidity refers to a company's ability to pay its current and long-term debts.
B)A company is always considered a serious credit risk if its quick ratio is below one.
C)All other things being equal,the existence of a line of credit enhances the ability of a company to meet its short-term obligations.
D)Liquid assets include all current assets.

Question

Quizplus · Accepted Answer

A line of credit provides a source of cash that a company can draw upon if needed, thereby improving its ability to meet short-term obligations. Choice A is incorrect because liquidity refers to a company's ability to convert its assets into cash to meet its obligations, not just its debt obligations. Choice B is incorrect because a quick ratio below one means a company may have difficulty meeting its current liabilities, but it does not necessarily make it a serious credit risk. Choice D is incorrect because liquid assets only include assets that can be easily converted into cash, such as cash and marketable securities, not all current assets.

Which One of the Following Statements Is True