Liquidity ratios measure the ability of an entity to:
A)survive in the long-term
B)meet its short term obligations and unexpected cash needs
C)generate profit
D)all of the options are correct

Question

Quizplus · Accepted Answer

Liquidity ratios are financial ratios that indicate a company's ability to meet its short term obligations and unexpected cash needs. These ratios assess the company's ability to convert assets into cash to pay off its short term debts. Therefore, option B is the correct answer. Option A and C are incorrect as liquidity ratios do not measure the entity's ability to survive in the long term or generate profit, respectively. Option D is also incorrect as it includes all options, whereas only option B is correct.

Liquidity Ratios Measure the Ability of an Entity To