Final answer:
To determine if a company can pay off a loan, one should examine the liquidity ratios, which indicate the ability to meet short-term obligations with liquid assets.
Step-by-step explanation:
When evaluating if your company will be able to pay off a loan after purchasing an item like heavenly bamboo, you should look at your liquidity ratios. This ratio measures a company's ability to cover its short-term obligations with its most liquid assets. A common example is the current ratio, which compares current assets to current liabilities. Profitability ratios are also relevant as they show the company's ability to generate profit, but they offer a longer-term perspective on the company's financial health. Leverage ratios tell you how much debt the company is using to finance its assets, which impacts its risk but does not directly indicate the ability to pay off specific short-term loans. Lastly, activity ratios measure the efficiency of a company's use of its assets but are less directly related to paying off a short-term loan compared to liquidity ratios.