Question

Which ratios help assess the firm’s ability to meet cash needs as they arise?

A. Current ratio and cash flow liquidity ratio
B. Average collection period and net profit margin
C. Debt ratio and dividend payout
D. Operating profit margin and return on equity

Answer 1

Answer:

Option A Current Ratio

Explanation:

The reason is that current ratio gives information from which source of finance the working capital is funded from. If the answer is below 1 then the short term liabilities are used to finance the short term assets. This also tells whether or not the company possesses enough cash and cash equivalents to fund its future cash needs by comparing its result with past data and the industry average. So the right option is option A.