Which of the following statements is correct?
A) Low liquidity ratios are undesirable.
B) High liquidity ratios may indicate excessive investments in unproductive current assets.
C) Low liquidity ratios can indicate liquidity problems.
D) All of the above statements are correct.

Question

Quizplus · Accepted Answer

All the statements provided offer a perspective on liquidity ratios and their implications for a business's financial health. Low liquidity ratios can indeed be undesirable as they may indicate a company's potential difficulty in meeting short-term obligations. High liquidity ratios, while suggesting a company can easily meet its short-term liabilities, may also indicate that it is not investing its excess cash properly or has too much inventory, which could be considered unproductive assets. Therefore, all the statements are correct in the context of financial analysis.

Which of the Following Statements Is Correct