Question

What is the most widely used liquidity ratio?

1) Quick ratio
2) Debt ratio
3) Current ratio
4) Inventory turnover

Answer 1

The most widely used liquidity ratio is the current ratio, which measures a company's ability to pay off short-term obligations using short-term assets.

Step-by-step explanation:

The most widely used liquidity ratio is the current ratio.

The current ratio is calculated by dividing a company's current assets by its current liabilities. It measures a company's ability to pay off its short-term obligations using its short-term assets. A higher current ratio indicates better liquidity and a lower risk of financial distress.

For example, if a company has $100,000 in current assets and $50,000 in current liabilities, the current ratio would be 2 ($100,000 / $50,000). This means the company has twice as many current assets as current liabilities.