The primary purpose of the liquidity ratios is to determine:
A)how much working capital is tied up in inventory.
B)the relative level of short-term debt.
C)how well a firm is able to pay off short-term obligations.
D)More than one of the above

Question

Quizplus · Accepted Answer

The primary emphasis of the liquidity ratios is a determination of the firm's ability to pay off short-term obligations as they come due. These ratios can be related to receivables and inventory turnover, in that a faster turnover creates a more rapid movement of cash through the company and improves liquidity. Again, remember that each industry will be different.

The Primary Purpose of the Liquidity Ratios Is to Determine