Final answer:
True, the current ratio, quick ratio, and cash flow liquidity ratio are used by financial analysts to assess short-term solvency, each analyzing a company's ability to meet short-term obligations with its assets and cash flows.
Step-by-step explanation:
The statement is true. The current ratio, quick ratio, and cash flow liquidity ratio are indeed three key metrics that financial analysts use to assess a company's short-term solvency. These ratios indicate whether a company has enough resources to cover its short-term obligations.
The current ratio measures a company's ability to pay off its short-term liabilities with its short-term assets. The formula for the current ratio is Current Assets / Current Liabilities.
The quick ratio, also known as the acid-test ratio, is similar to the current ratio but excludes inventory from current assets, as inventory is not as easily converted to cash. The formula is (Current Assets - Inventory) / Current Liabilities.
The cash flow liquidity ratio gauges the cash flow from operations in relation to current liabilities. Its formula is Cash Flows from Operating Activities / Current Liabilities, and it provides insight into the company's ability to generate enough cash to maintain liquidity.