Liquidity Ratios Quiz

What is the primary purpose of liquidity ratios in business?

• To assess a company's ability to meet short-term obligations

• To measure long-term profitability

• To evaluate employee performance

• To determine market share

Which of the following is NOT considered a current asset?

• Long-term Investments

• Accounts Receivable

• Cash

• Inventory

How does the quick ratio differ from the current ratio?

• It considers only cash and cash equivalents

• It excludes inventory from current assets

• It includes inventory in its calculation

• It focuses on long-term liabilities

What does a cash ratio of 0.5 indicate about a company's liquidity?

• The company is highly liquid

• The company has 50 cents in cash for every dollar of liability

• The company has enough cash to cover all its liabilities

• The company has no liquidity issues

In the given example, what is the quick ratio of the company?

• 0.83

• 2.0

• 1.33

• 1.67

Why are liquidity ratios important for crisis management?

• They increase market share

• They ensure a company can handle financial shocks

• They help in predicting future profits

• They improve employee satisfaction

What might an excessively high liquidity ratio suggest?

• Inefficient use of assets

• Efficient asset use

• Potential liquidity issues

• Strong long-term profitability

Which of the following is a limitation of liquidity ratios?

• They vary significantly across different industries

• They provide a comprehensive view of long-term financial health

• They are always accurate

• They focus on long-term liabilities

How do liquidity ratios assist in decision-making?

• By evaluating employee performance

• By providing insight into a company's short-term financial stability

• By predicting stock market trends

• By determining tax liabilities

What is a potential drawback of relying solely on liquidity ratios?

• They are easy to manipulate

• They provide a complete picture of financial health

• They overlook long-term financial health and profitability

• They are universally applicable across all industries