Question

_____ ratio is a liquidity ratio that indicates the extent to which short-term assets can decline and still be adequate to pay short-term liabilities.

A. Debt-equity

B. Current

C. Profitability

D. Return on investment

E. Stockholders' equity

Answer 1

The current ratio is a liquidity ratio that measures a company's ability to meet its short-term obligations using its short-term assets.

Step-by-step explanation:

The correct answer is B. Current ratio. The current ratio is a liquidity ratio that measures a company's ability to meet its short-term obligations using its short-term assets. It compares a company's current assets, such as cash, accounts receivable, and inventory, to its current liabilities, such as accounts payable and short-term debt. A higher current ratio indicates a better ability to pay off short-term liabilities.

For example, if a company has current assets of $100,000 and current liabilities of $50,000, its current ratio would be 2. This means that the company has $2 of current assets for every $1 of current liabilities, indicating a strong liquidity position.