# Which among the following ratio is considered as a true measure of liquidity? (2023)

## Which ratio is considered the best measure of liquidity?

1. Current Ratio. The current ratio is the simplest liquidity ratio to calculate and interpret. Anyone can easily find the current assets and current liabilities line items on a company's balance sheet.

(Video) Liquidity Ratios - Current Ratio and Quick Ratio (Acid Test Ratio)
(The Organic Chemistry Tutor)
Which ratio can be used as a measure of a company's liquidity?

The current ratio measures a company's ability to pay off its current liabilities (payable within one year) with its current assets such as cash, accounts receivable, and inventories. The higher the ratio, the better the company's liquidity position.

(Video) Liquidity Ratios | How to Calculate the Liquid Capital & Current Ratio
(Two Teachers)
Which of the following is a measure of liquidity?

Working capital ratio is another name of current ratio. It is one of the liquidity ratios of an organization which help in measuring the liquidity of the company by taking total current assets and then divide them by total current liabilities.

(Video) Liquidity Ratios. Tutorial Current Ratio and Acid Test ratio.
(Farhat's Accounting Lectures)
What are the 5 liquidity ratios?

Let us know more in detail about these ratios.
• Current Ratio or Working Capital Ratio. The current ratio is a measure of a company's ability to pay off the obligations within the next twelve months. ...
• Quick Ratio or Acid Test Ratio. ...
• Cash Ratio or Absolute Liquidity Ratio. ...
• Net Working Capital Ratio.

(Video) Fundamental Analysis Tutorial: Financial Ratios PART 2 - The Quick Ratio (Acid Test Ratio)
(Subjectmoney)
Which of the following is a liquidity ratio Mcq?

A liquidity ratio is an indicator of whether a company's current assets will be sufficient to meet the company's obligations when they become due. The liquidity ratios include the current ratio and the acid test or quick ratio.

(Video) Liquidity Ratios
(365 Financial Analyst)
Is quick ratio A liquidity ratio?

The quick and current ratios are liquidity ratios that help investors and analysts gauge a company's ability to meet its short-term obligations. The current ratio divides current assets by current liabilities. The quick ratio only considers highly-liquid assets or cash equivalents as part of current assets.

(Video) Liquidity Ratios
(Angela Besino)
Is current ratio A liquidity ratio?

The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year. It tells investors and analysts how a company can maximize the current assets on its balance sheet to satisfy its current debt and other payables.

(Video) Liquidity Ratios - Meaning, Formula, Calculation & Interpretations
(WallStreetMojo)
Which of the following is not a measure of liquidity?

Answer and Explanation: The correct answer is c. Debt to assets ratio.

(Video) Current Ratio or Liquidity Ratio (Fundamental Analysis)
Why are financial ratios used to measure liquidity?

Liquidity ratios are an important class of financial metrics used to determine a debtor's ability to pay off current debt obligations without raising external capital. Common liquidity ratios include the quick ratio, current ratio, and days sales outstanding.

(Video) Current ratio and other Liquidity Ratios explained
(Farhat's Accounting Lectures)
What are the 2 liquidity ratios?

Liquidity ratios are important financial metrics used to assess a company's ability to pay current debt obligations. The two most common liquidity ratios are the current ratio and the quick ratio.

(Video) 1 3 2 liquidity ratios
(FIN 602)

## What are the types of liquidity?

The two main types of liquidity include market liquidity and accounting liquidity. Current, quick, and cash ratios are most commonly used to measure liquidity.

(Video) Financial Ratios Liquidity and Leverage Copy
(Larry Byerly)
Which of the following ratios is not a liquidity ratio?

Answer and Explanation: 1) Which of the following ratios is not a liquidity ratio? ROE (Return on Equity) is a profitability ratio, whereas all others are liquidity ratios. Which of the following is the test of the long-term liquidity of a business Mcq?

Interest coverage ratio is the test of the long-term liquidity of a business. Interest coverage ratio can be defined as the ratio which helps to determine how easily a company can pay the interest on its outstanding debt.

Which ratio is the best known measure of financial strength Mcq?

The two most common metrics used to measure liquidity are the current ratio and the quick ratio. A company's bottom line profit margin is the best single indicator of its financial health and long-term viability.

Which of the following is an important step in ratio analysis Mcq?

Comparison of the calculated ratios with the same type of ratios of other similar business concern.

What is liquid ratio also known as?

Ratio of quick/liquid assets to current liabilities is known as liquid ratio. It is also known as acid test ratio.

What are the four liquidity ratios?

4 Common Liquidity Ratios
• Current Liquidity Ratio.
• Acid-Test Liquidity Ratio.
• Cash Liquidity Ratio.
• Operating Cash Flow Liquidity Ratio.
1 Mar 2020

Which of the following is the most commonly used liquidity ratio?

1. Current ratio: Calculating the current ratio of a company or individual is the simplest and most common way of measuring liquidity. The current ratio looks at a company's total current assets—cash assets and otherwise—against their total current liabilities like debt obligations.

What is the most widely used liquidity ratio?

Current ratio – It is the most widely used measure of liquidity.

Is current ratio a measure of liquidity?

The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year. It tells investors and analysts how a company can maximize the current assets on its balance sheet to satisfy its current debt and other payables.

## Is a high or low quick ratio better?

In general, a higher quick ratio is better. This is because the formula's numerator (the most liquid current assets) will be higher than the formula's denominator (the company's current liabilities). A higher quick ratio signals that a company can be more liquid and generate cash quickly in case of emergency.

What are two measures of liquidity?

The two measures of liquidity are: Market Liquidity. Accounting Liquidity.

Which of the following is an example of a liquidity ratio?

Common liquidity ratios include the quick ratio, current ratio, and days sales outstanding. Liquidity ratios determine a company's ability to cover short-term obligations and cash flows, while solvency ratios are concerned with a longer-term ability to pay ongoing debts.

Which of the following ratios is not a liquidity ratio?

Answer and Explanation: 1) Which of the following ratios is not a liquidity ratio? ROE (Return on Equity) is a profitability ratio, whereas all others are liquidity ratios.

Is cash ratio same as liquidity ratio?

The cash ratio is more conservative than other liquidity ratios because it only considers a company's most liquid resources.

Which of the following is not a measure of liquidity?

Answer and Explanation: The correct answer is c. Debt to assets ratio.

What is liquid ratio also known as?

Ratio of quick/liquid assets to current liabilities is known as liquid ratio. It is also known as acid test ratio.

Is acid test ratio a liquidity ratio?

The acid-test ratio (ATR), also commonly known as the quick ratio, measures the liquidity of a company by calculating how well current assets can cover current liabilities. The quick ratio uses only the most liquid current assets that can be converted to cash within 90 days or less.

Why is the quick ratio 1 1?

A quick ratio of 1.0:1 means you have a dollar's worth of easily convertible assets for each dollar of your current liabilities. Though acceptable ratios can vary from industry to industry, a ratio of 1.0:1 is generally acceptable to most creditors.

What is quick ratio and current ratio?

Quick ratio only uses quick assets and excludes any assets that can't be liquidated and converted into cash in 90 days or less. The current ratio considers all holdings that can be liquidated and converted into cash within a year.

## What is good current ratio?

In most industries, a good current ratio is between 1.5 and 2. A ratio under 1 indicates that a company's debts due in a year or less is greater than its assets.

What are the types of liquidity?

The two main types of liquidity include market liquidity and accounting liquidity. Current, quick, and cash ratios are most commonly used to measure liquidity.

What are the four liquidity ratios?

4 Common Liquidity Ratios
• Current Liquidity Ratio.
• Acid-Test Liquidity Ratio.
• Cash Liquidity Ratio.
• Operating Cash Flow Liquidity Ratio.
1 Mar 2020

Why is liquidity ratio important?

Your liquidity ratio tells you whether you have the ability to meet your upcoming liabilities. Typically, this means you have sufficient cash, bank deposits or assets that can quickly be converted to cash to pay your bills. If you don't, your business could hit difficulties and could even be forced to cease trading.

You might also like
Popular posts
Latest Posts
Article information

Author: Fr. Dewey Fisher

Last Updated: 04/15/2023

Views: 5861

Rating: 4.1 / 5 (42 voted)

Author information

Name: Fr. Dewey Fisher

Birthday: 1993-03-26

Address: 917 Hyun Views, Rogahnmouth, KY 91013-8827

Phone: +5938540192553