Scenario - Katrina Aldridge
The yearly auditing review of Pilgrim Industries is scheduled for next month. Katrina Aldridge is preparing for that audit and is also preparing her budget for the coming year.
-Katrina has also requested that the financial ratios be calculated and analyzed for her. Which of the following ratios will give her the best information for evaluating liquidity?
A) Profit margin on sales
B) Current ratio
C) Conversion ratio
D) Return on assets
E) None of these.

Question

Scenario - Katrina Aldridge 
The yearly auditing review of Pilgrim Industries is scheduled for next month. Katrina Aldridge is preparing for that audit and is also preparing her budget for the coming year.
-Katrina has also requested that the financial ratios be calculated and analyzed for her. Which of the following ratios will give her the best information for evaluating liquidity?
A) Profit margin on sales
B) Current ratio
C) Conversion ratio
D) Return on assets
E) None of these.

Quizplus · Accepted Answer

The current ratio measures a company's ability to pay current liabilities with current assets. A higher current ratio indicates that a company has more current assets available to pay off its current liabilities, meaning it has better liquidity. Therefore, the current ratio would provide Katrina with the best information for evaluating liquidity. The other ratios listed (profit margin on sales, conversion ratio, return on assets) do not directly measure liquidity.