Which of the following combinations of ratios would indicate that a company is financially mismanaged and is not a good credit risk?
A)High liquidity; high leverage
B)Low liquidity; high leverage
C)High liquidity; low leverage
D)Low liquidity; low leverage

Question

Quizplus · Accepted Answer

Low liquidity and high leverage indicate that the company may not have enough cash flow to meet its debt obligations, which makes it a risky credit investment. A high liquidity ratio indicates the company has excess cash or assets that may not be generating sufficient returns, while a high leverage ratio indicates the company is relying too much on debt financing. A low leverage ratio may indicate the company is not taking advantage of available financing, but it does not necessarily indicate mismanagement or poor creditworthiness.

Which of the Following Combinations of Ratios Would Indicate That