Liquidity Ratio

What does liquidity refer to in financial analysis?

• A firm's ability to generate long-term profits.

• A firm's ability to meet its short-term obligations.

• A firm's total assets minus its total liabilities.

• A firm's ability to pay its long-term debts.

What does a current ratio greater than 1 indicate for a firm?

• Negative working capital.

• Current assets are less than current liabilities.

• Positive working capital.

• Inability to pay short-term bills.

Why might the current ratio not always provide an accurate representation of a firm's ability to meet short-term obligations, and which ratio addresses this limitation?

• It excludes non-current assets; the cash ratio.

• It includes inventory which is less liquid; the quick ratio.

• It only considers current liabilities; the debt-to-equity ratio.

• It does not account for long-term debt; the solvency ratio.

What does an improving Quick Ratio indicate for a company?

• The company is less likely to pay its short-term bills.

• The company's current assets are growing slower than its current liabilities.

• The company's current assets are growing faster than its current liabilities.

• The company's long-term debt obligations are increasing.

What does a Cash Ratio significantly below 1.0 indicate for a company?

• The company can easily meet its short-term obligations with cash and marketable securities.

• The company has sufficient cash and marketable securities to cover its average daily expenses for an extended period.

• The company may struggle to settle its short-term liabilities quickly without converting other assets.

• The company's long-term solvency is guaranteed.