Which type of financial ratio measures whether a firm is able to meet its current financial obligations?
A) activity ratio
B) liquidity ratio
C) dividend ratio
D) profitability ratio

Question

Quizplus · Accepted Answer

Liquidity ratios measure a firm's ability to meet its current financial obligations. These ratios focus on a company's short-term assets and liabilities, such as cash, inventory, accounts payable, and current debt. Examples of liquidity ratios include the current ratio, quick ratio, and cash ratio. Activity ratios measure a firm's efficiency in managing its assets, dividend ratios measure the amount of dividends paid out to shareholders, and profitability ratios measure a firm's ability to generate profits in relation to its revenue, assets, or equity.

Which Type of Financial Ratio Measures Whether a Firm Is