CS Executive · Corporate Accounting and Financial Management · Financial Statement Analysis
Ratios such as current ratio and quick ratio, which measure a firm's ability to meet its short-term obligations as they fall due, are classified as:
They are liquidity ratios, because current and quick ratios compare current or liquid assets with current liabilities to show whether a firm can pay its short-term obligations on time. Activity, profitability and leverage ratios address efficiency, returns and long-term debt respectively.
- ALiquidity ratiosCorrect
- BActivity ratios
- CProfitability ratios
- DLeverage ratios
Explanation
Current and quick ratios compare liquid or current assets with current liabilities, so they show short-term solvency. Activity ratios measure efficiency of asset use, profitability ratios measure returns, and leverage ratios measure long-term capital structure and debt burden.
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