Question

A firm's liquidity is measured with which one of the following ratios?

a)Current ratio
b)Net working capital ratio
c)Debt-equity ratio
d)Market-to-book ratio
e)Net profit margin

Answer 1

The firm's liquidity is measured with the current ratio, which is calculated by dividing the current assets by current liabilities. A higher current ratio indicates a greater ability to meet short-term debts.

Step-by-step explanation:

The firm's liquidity is measured with the current ratio.

The current ratio is calculated by dividing the current assets of a firm by its current liabilities. It measures the firm's ability to pay off its short-term obligations using its short-term assets. A higher current ratio indicates a greater ability to meet short-term debts.

For example, if a firm has $100,000 in current assets and $50,000 in current liabilities, the current ratio would be 2:1 ($100,000 / $50,000 = 2).