Question

Which of the following ratios are measures of a firm's liquidity? I. Long term debt ratio. II. Current ratio. III. Fixed asset trunover. IV. Quick ratio. Group of answer choices I, III, and IV only. I, II, and III only. I, II, III, and IV. I and III only. II and IV only.

Answer 1

Answer:

II and IV only.

Explanation:

‘Ratio Analysis’ is used to analyze the performance of a company. It is used to analyze the liquidity, profitability, solvency and operational efficiency of the company.

Liquidity ratios: It helps in analyzing the ability of the firm to pay of its short terms liabilities using short term assets.

Following ratios are classified as liquidity ratio:

1. Quick ratio determines the ability of the firm to pay off its current liabilities using quick assets.
2. Current ratio determines the ability of the firm to pay off its current liabilities using current assets.