A liquidity ratio shows the company's ability to meet its current debt obligations and is a measurement of the organisation's margin of safety.

Question

Quizplus · Accepted Answer

A liquidity ratio, such as the current ratio or quick ratio, is designed to measure a company's ability to meet its current debt obligations using its current assets. This gives an indication of the company's margin of safety and its ability to comfortably pay its debts without relying on additional borrowing. Therefore, the statement is true.

A Liquidity Ratio Shows the Company's Ability to Meet Its