The two categories of ratios that should be utilized to assess a firm's true liquidity are the
A) current and quick ratios.
B) liquidity and profitability ratios.
C) liquidity and debt ratios.
D) liquidity and activity ratios.

Question

Quizplus · Accepted Answer

The two categories of ratios that should be utilized to assess a firm's true liquidity are the liquidity and activity ratios. Liquidity ratios provide information on the availability of a company's current assets to meet its current liabilities, while activity ratios measure the efficiency of a company's operations in generating revenue. Together, these ratios provide a comprehensive picture of a company's ability to meet its short-term obligations, as well as its ability to effectively use its assets to generate profits. Current ratio and quick ratio fall under liquidity ratios, while debt and profitability ratios fall under other categories, hence options A, B, and C can be ruled out.

The Two Categories of Ratios That Should Be Utilized to Assess