Liquidity ratios, such as the current ratio and quick ratio, measure a company's ability to meet its short-term obligations and pay off its current debts. These ratios are important in determining whether a company has enough cash and liquid assets to cover its immediate financial obligations, including payments to suppliers and lenders. Therefore, option A is the best choice in this case.

Solved

Liquidity Ratios

Question 107

Multiple Choice

Liquidity ratios

A) indicate the company's ability to pay short-term debts.
B) include current ratios and debt-equity ratios.
C) indicate management's ability to generate a financial return on sales or investment.
D) include profitability and turnover ratios.
E) indicate the company's ability to pay long-term debts.

Correct Answer: