Which of the following ratios is the best measure of liquidity?
A) Return on assets ratio.
B) Ratio of cash flow from operations to capital expenditures.
C) Current ratio.
D) Earnings per share.

Question

Quizplus · Accepted Answer

The current ratio measures a company's ability to pay its short-term obligations with its short-term assets. A higher current ratio indicates better liquidity as it means the company has more assets to cover its debts. Return on assets ratio and earnings per share are measures of profitability, not liquidity. Ratio of cash flow from operations to capital expenditures is a measure of a company's ability to finance its capital expenditures with its operating cash flows, but it does not necessarily indicate liquidity.

Which of the Following Ratios Is the Best Measure of Liquidity