Which of the following is NOT true of liquidity ratios?
A) They measure the ability of the company to meet short-term obligations with short-term assets without putting the company in financial trouble.
B) There are two commonly used ratios to measure liquidity-current ratio and quick ratio.
C) For manufacturing companies, quick ratios will tend to be much larger than current ratios.
D) The higher the number, the more liquid the company and the better its ability to pay its short-term bills.

Question

Quizplus · Accepted Answer

The statement "For manufacturing companies, quick ratios will tend to be much larger than current ratios" is not true. In fact, for manufacturing companies, current ratios tend to be larger than quick ratios because they typically have a higher amount of inventory that is not easily converted to cash.

Which of the Following Is NOT True of Liquidity Ratios