A deficiency of the standard measures of liquidity is that the measures:
A) ignore a firm's reserve borrowing capacity.
B) fail to include accounts receivable as an asset.
C) give inventories equal weighting in the quick ratio.
D) do not include the current portions of long-term debt.

Question

Quizplus · Accepted Answer

The standard measures of liquidity, such as the current ratio and quick ratio, only consider a firm's current assets and liabilities. They do not take into account the reserve borrowing capacity, which could be used to address short-term liquidity needs. A firm may have unused credit lines or other sources of financing that could be used to address liquidity issues, but these are not reflected in the standard measures of liquidity.

A Deficiency of the Standard Measures of Liquidity Is That