Which of the following ratios is used to evaluate a company's liquidity?
A)Debt to assets ratio.
B)Asset turnover ratio.
C)Return on equity ratio.
D)Current ratio.

Question

Quizplus · Accepted Answer

The current ratio measures a company's ability to pay its short-term debts with its current assets. This is a key liquidity ratio as it shows whether a company has enough current assets to meet its current liabilities. Choice A, debt to assets ratio, measures the proportion of a company's assets that are financed with debt, and is more commonly used to evaluate a company's leverage or solvency. Choice B, asset turnover ratio, measures a company's efficiency at using its assets to generate sales, and is used to evaluate a company's operational efficiency. Choice C, return on equity ratio, measures a company's profitability relative to its shareholder equity, and is used to evaluate a company's financial performance.

Which of the Following Ratios Is Used to Evaluate a Company's