What would a creditor calculate to assess liquidity?
A)Operating cycle
B)Gross margin
C)Current ratio
D)Debt-to-equity ratio

Question

Quizplus · Accepted Answer

A creditor would calculate the current ratio to assess a company's liquidity. The current ratio is a measure of a company's ability to meet its short-term obligations with its current assets, and a higher current ratio indicates a better ability to do so. Therefore, it is an important metric for creditors evaluating a company's ability to pay back debt in the short term. The operating cycle and gross margin are measures of profitability, while the debt-to-equity ratio is a measure of a company's financial leverage. While these metrics may also be important to creditors, they do not directly assess a company's liquidity.

What Would a Creditor Calculate to Assess Liquidity