The current ratio and inventory turnover ratio measure the liquidity of a firm. The current ratio measures the relationship of a firm's current assets to its current liabilities and the inventory turnover ratio measures how rapidly a firm turns its inventory back into a "quick" asset or cash.

Question

Quizplus · Accepted Answer

The inventory turnover ratio measures how efficiently a firm manages its inventory, not its liquidity. The current ratio is a liquidity measure, but the inventory turnover ratio is more about operational efficiency.

The Current Ratio and Inventory Turnover Ratio Measure the Liquidity