Which type of ratios focus on the ability of a firm to meet its short-term financial obligations?
A) activity ratios
B) liquidity ratios
C) leverage ratios
D) profitability ratios

Question

Quizplus · Accepted Answer

Liquidity ratios focus on a firm's ability to meet short-term financial obligations by measuring its ability to convert current assets into cash to satisfy current liabilities. Examples of liquidity ratios include current ratio, quick ratio, and cash ratio. Activity ratios focus on how efficiently a company uses its assets, leverage ratios measure the amount of debt a company has in relation to its equity, and profitability ratios measure a company's ability to generate profits.

Which Type of Ratios Focus on the Ability of a Firm