CA Intermediate · Financial Management and Strategic Management · Financial Analysis and Planning - Ratio Analysis
Which one of the following ratios is classified as a liquidity ratio?
The quick ratio is a liquidity ratio because it compares liquid current assets with current liabilities to test short-term solvency. Debt-equity is a leverage ratio, inventory turnover is an activity ratio, and net profit ratio measures profitability, so none of those is a liquidity measure.
- ADebt-equity ratio
- BQuick ratioCorrect
- CInventory turnover ratio
- DNet profit ratio
Explanation
Liquidity ratios measure a firm's ability to meet short-term obligations; current ratio and quick ratio are the standard examples. Debt-equity is a solvency (leverage) ratio, inventory turnover is an activity ratio, and net profit ratio is a profitability ratio.
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