Which of the following statements regarding liquidity and solvency ratios is true?
A)Unlike solvency ratios,liquidity ratios relate to the company's long-run survival.
B)Both liquidity ratios and solvency ratios measure a company's ability to meet its financial obligations.
C)Liquidity ratios include the return on equity ratio and the times interest earned ratio.
D)Solvency ratios include the current ratio and the net profit margin ratio.

Question

Quizplus · Accepted Answer

Both liquidity ratios and solvency ratios measure a company's ability to meet its financial obligations. However, liquidity ratios focus on a company's short-term ability to pay its debts, while solvency ratios focus on its long-term ability to meet financial obligations. The return on equity ratio and times interest earned ratio are examples of profitability ratios, not liquidity ratios. Similarly, the current ratio and net profit margin ratio are examples of liquidity ratios, not solvency ratios.

Which of the Following Statements Regarding Liquidity and Solvency Ratios