Question

Which of the following is not a ratio to assess a firm's liquidity?a. Current Ratiob. Debt ratioc. Quick Ratiod. All of the above assess liquidity.

Answer 1

Answer:

b. Debt ratio

Explanation:

The liquidity ratio includes the current ratio, quick ratio, etc

where,  

Current ratio = Total Current assets ÷ total current liabilities

And, Quick ratio = Quick assets ÷ total current liabilities  

where,  

Quick assets = Cash and cash equivalents + short-term investments + Accounts receivable (net)  

These two ratios check the liquidity of the business organization whereas debt ratio shows a relationship between the total liabilities and the total assets. It checks the leverage of the firm whether it is capable to repay the borrowed amount or not

Hence, option b is correct