Final answer:
The statement that financial statement readers often assess liquidity by using the current cash debt coverage is true. This ratio is an important indicator of a company's ability to cover its short-term obligations with cash from operations.
Step-by-step explanation:
True or False: Financial statement readers often assess liquidity by using the current cash debt coverage. The statement is true. Liquidity refers to a company's ability to meet its short-term obligations using its most liquid assets. The current cash debt coverage ratio is an important indicator used to evaluate liquidity. It compares a company's operating cash flow to its current liabilities, reflecting how well a company can cover its short-term debt with the cash it generates from its regular business operations.
When businesses have an increase in debt, it generally leads to higher interest payments. This scenario is presented in point 8, stating that as debt increases, interest payments also rise, which can expand the deficit even if other government spending remains constant. However, the impact on the deficit as a percentage of Gross Domestic Product (GDP) might not always show an increase because the economy can grow, offsetting the impact of higher interest payments. This subtlety is captured in the statement under point 9 which clarifies that the presumption in point 8 is false when considering the share of GDP, but true in nominal dollars.
The relationship between the government's fiscal policy, debt, and the economy's performance is complex. Reading and interpreting financial statements, along with understanding the underlying financial and economic principles, are crucial skills in business and finance.