When financial managers are concerned about the ability to pay off debts that will come due in the next year, which of the following are they likely to focus on?
A) incremental analysis
B) liquidity ratios
C) capital budgets
D) leverage ratios

Question

Quizplus · Accepted Answer

Financial managers are likely to focus on liquidity ratios when concerned about the ability to pay off debts that will come due in the next year. Liquidity ratios measure a company's ability to meet short-term obligations and financial managers may use these ratios to assess whether the company has sufficient cash and assets that can be quickly converted to cash to cover upcoming debts. Incremental analysis involves examining the costs and benefits of different alternatives, capital budgets focus on longer-term investments, and leverage ratios assess a company's use of debt in relation to its equity.

When Financial Managers Are Concerned About the Ability to Pay