Final answer:
Liquidity analysis is used to determine if a company can pay its short-term debts. Two commonly used ratios are the current ratio and the quick ratio.
Step-by-step explanation:
The type of analysis used to determine if a company can pay its short-term debts as they come due is called liquidity analysis. Liquidity analysis assesses a company's ability to meet its current obligations using different financial ratios.
One commonly used ratio is the current ratio, which is calculated by dividing current assets by current liabilities. A current ratio of 1 or higher indicates that a company has enough current assets to cover its current liabilities.
Another ratio is the quick ratio, which excludes inventory from current assets as it is not always easily converted into cash. The quick ratio is calculated by dividing quick assets (current assets - inventory) by current liabilities. A quick ratio of 1 or higher is considered good liquidity.