Answered: liquidity ratio

Business

Finance

liquidity ratio

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter16: Financial Statement Analysis

Section: Chapter Questions

Problem 1DQ

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Question

can you help me understand the liquidity ratio?

Expert Solution

Step 1

INTRODUCTION

It is a ratio which the capability of a company to pay off its debts as and when they become due. We can say that this ratio shows that how fast a company can convert its current assets into cash so that it can pay off its debts on time.

The higher ratio means that the business has the ability to meet its current obligations. A good liquidity ratio is considered to be greater than 1. This ratio is generally used by creditors and lenders for providing credit.

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