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Which of the following is a liquidity ratio?

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Question: Which of the following is a liquidity ratio?

Options:

  1. Debt to Equity Ratio
  2. Current Ratio
  3. Return on Equity
  4. Gross Profit Margin

Correct Answer: Current Ratio

Solution: 

The Current Ratio is a liquidity ratio that measures a company\'s ability to pay short-term obligations.

Which of the following is a liquidity ratio?

Practice Questions

Q1
Which of the following is a liquidity ratio?
  1. Debt to Equity Ratio
  2. Current Ratio
  3. Return on Equity
  4. Gross Profit Margin

Questions & Step-by-Step Solutions

Which of the following is a liquidity ratio?
  • Step 1: Understand what a liquidity ratio is. A liquidity ratio helps us know if a company can pay its short-term debts.
  • Step 2: Identify the types of liquidity ratios. Common liquidity ratios include the Current Ratio and Quick Ratio.
  • Step 3: Learn about the Current Ratio. The Current Ratio is calculated by dividing current assets by current liabilities.
  • Step 4: Recognize that the Current Ratio shows how well a company can cover its short-term obligations with its short-term assets.
  • Step 5: Conclude that the Current Ratio is indeed a liquidity ratio.
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