Question

Computing liquidity ratios is ________ but interpreting them is ________. a. complex; even more complex b. complex; more straightforward c. straightforward; more complex d. none of these

Answer 1

Computing liquidity ratios is straightforward but interpreting them is more complex.

Liquidity ratios are used to measure a company's ability in order to pay debt obligations and its margin of safety for the calculation of metrics, this includes the current ratio, operating cash flow ratio, and quick ratio.

Creditors and investors interpret the liquidity ratios. These creditors and investors like to see high liquidity ratios, such as two or three. So when the ratio is the higher, the more likely a company is able to pay its short-term bills.

Thus, when a liquidity ratio of a company is less than one it means that the company is facing a negative working capital and is experiencing a liquidity crisis.

Hence, option C is correct.

To learn more about liquidity ratios here:

brainly.com/question/14805679

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