What is the primary purpose of liquidity ratios in a business context?
Understanding Liquidity Ratios in Financial Analysis

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1.
MULTIPLE CHOICE QUESTION
30 sec • 1 pt
To measure long-term profitability
To assess the ability to meet short-term liabilities
To evaluate employee performance
To determine market share
2.
MULTIPLE CHOICE QUESTION
30 sec • 1 pt
How is the current ratio calculated?
By dividing total liabilities by total assets
By dividing current assets by current liabilities
By subtracting liabilities from assets
By adding current assets and liabilities
3.
MULTIPLE CHOICE QUESTION
30 sec • 1 pt
In the example provided, what does a current ratio of 8 to 1 indicate?
The business is likely to face bankruptcy
The business has excess liquidity
The business is in a risky financial position
The business has insufficient liquidity
4.
MULTIPLE CHOICE QUESTION
30 sec • 1 pt
What is considered an ideal range for the current ratio?
Between 3 and 4
Between 2 and 3
Between 1 and 1.5
Between 0.5 and 1
5.
MULTIPLE CHOICE QUESTION
30 sec • 1 pt
What might be a consequence of having too much liquidity?
Increased risk of bankruptcy
Higher returns on investments
Excessive cash reserves with low returns
Inability to pay short-term debts
6.
MULTIPLE CHOICE QUESTION
30 sec • 1 pt
Which strategy can help a business increase its liquidity?
Increasing long-term liabilities
Reducing current liabilities
Increasing fixed assets
Decreasing current assets
7.
MULTIPLE CHOICE QUESTION
30 sec • 1 pt
Why is it important for a business to balance liquidity and profitability?
To ensure high employee satisfaction
To maximize shareholder returns while maintaining solvency
To increase market share
To reduce operational costs
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