Which ratio measures the ability of an organization to convert assets into the cash it needs to pay off liabilities that come due in the next year?
A) liquidity
B) asset management
C) leverage
D) profitability

Question

Quizplus · Accepted Answer

Liquidity ratios measure the ability of an organization to meet its short-term debt obligations by determining the availability of cash or other liquid assets. The ratio that measures the ability of an organization to convert assets into cash to pay off liabilities that are due in the next year is called the current ratio, which is one of the liquidity ratios. Hence, option A is the correct answer. Asset management ratios measure how efficiently an organization is using its assets to generate revenues. Leverage ratios measure the extent to which an organization is using debt to finance its operations. Profitability ratios measure the overall profitability of an organization by comparing its revenues to its expenses. None of these ratios measure the ability of an organization to convert assets into cash in the short term.

Which Ratio Measures the Ability of an Organization to Convert