When financial managers are concerned about the ability to pay off debts that will come due in the next year, they are likely to focus on:
A) liquidity ratios.
B) activity ratios.
C) profitability ratios.
D) leverage ratios.

Question

Quizplus · Accepted Answer

Liquidity ratios measure a company's ability to pay off its short-term liabilities, such as debts that will come due in the next year. Therefore, financial managers who are concerned about paying off debts in the near future are likely to focus on liquidity ratios. Activity ratios measure how efficiently a company uses its assets, profitability ratios measure the company's ability to generate profits, and leverage ratios measure the company's level of debt in relation to its assets.

When Financial Managers Are Concerned About the Ability to Pay