Investigating liquidity is important because
A)if a company cannot pay its bills on time, it will have difficulty obtaining resources needed to continue operating.
B)a company needs the ability to buy long-term assets.
C)a company's price earnings ratio will decline.
D)GAAP requires that assets must exceed liabilities.

Question

Quizplus · Accepted Answer

Liquidity refers to a company's ability to meet its short-term obligations. If a company cannot pay its bills on time, it may face difficulty in obtaining resources needed to continue operating, such as loans or credit. This can lead to cash flow problems and even bankruptcy. Therefore, investigating liquidity is important to assess a company's financial health and ability to operate effectively in the short-term. Choices B, C, and D are not directly related to liquidity.

Investigating Liquidity Is Important Because