Ratios that focus on cash are more useful than those that focus on income in the evaluation of a company's liquidity.

Question

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Ratios that focus on cash provide a more accurate and immediate reflection of a company's ability to meet its short-term obligations, whereas income may be affected by non-cash items such as depreciation. Therefore, ratios such as cash ratio, quick ratio, and operating cash flow ratio are more useful in assessing a company's liquidity position.

Ratios That Focus on Cash Are More Useful Than Those