What type of ratios best measure the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash?
A) Leverage
B) Solvency
C) Profitability
D) Liquidity

Question

Quizplus · Accepted Answer

Liquidity ratios measure a company's ability to meet its short-term obligations and unexpected cash needs. These ratios include the current ratio and quick ratio (also known as acid-test ratio). Both of these ratios focus on a company's current assets and liabilities, and provide insight into the company's ability to pay off debts and cover expenses in the short term. Leverage ratios measure a company's long-term debt, solvency ratios measure a company's ability to meet long-term obligations, and profitability ratios measure a company's ability to generate profits.

What Type of Ratios Best Measure the Short-Term Ability of the Company