Which of the following statements regarding liquidity and solvency ratios is true?
A) Unlike solvency ratios, liquidity ratios relate to the company's long-run survival.
B) Both liquidity ratios and solvency ratios measure a company's ability to meet its financial obligations.
C) Liquidity ratios include return on equity ratio and times interest earned ratio.
D) Solvency ratios include current ratio and net profit margin ratio.

Question

Quizplus · Accepted Answer

Both liquidity ratios and solvency ratios are used to measure a company's ability to meet its financial obligations. Liquidity ratios specifically focus on a company's short-term liquidity, while solvency ratios assess a company's long-term ability to pay off its debts. Return on equity ratio and times interest earned ratio are examples of solvency ratios, while current ratio and net profit margin ratio are examples of liquidity ratios.

Which of the Following Statements Regarding Liquidity and Solvency Ratios