CASE
Scenario - Martina Gomez
The yearly auditing review of Aztec Industries is scheduled for next month. Martina Gomez is preparing for that audit and is also preparing her budget for the coming year.
-Martina 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

Quizplus · Accepted Answer

The current ratio, which measures a company's ability to pay its current liabilities with its current assets, is the best ratio for evaluating liquidity. It shows whether a company has enough short-term assets to cover its short-term debts. A high current ratio (ideally above 2) indicates that a company can easily pay off its short-term debts, while a low ratio could indicate financial trouble. The other ratios listed do not directly measure liquidity. Profit margin on sales measures a company's profitability, conversion ratio measures the efficiency of sales and marketing efforts, and return on assets measures a company's overall profitability in relation to its total assets.

CASE Scenario - Martina Gomez