Question : Assertion (A): Liquidity Ratios provide information on the firm's capacity to satisfy its immediate financial obligations.
Reason (R): The current ratio and quick ratio are two liquidity ratios that aid in determining a company's financial standing and ability to timely satisfy its short-term financial obligations.
Option 1: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
Option 2: Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
Option 3: Assertion (A) is true but Reason (R) is False
Option 4: Assertion (A) is False but Reason (R) is True.
Correct Answer: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
Solution :
A group of financial measurements known as liquidity ratios is used to assess a debtor's capacity to settle current debt commitments without the need for outside funding.
The current ratio demonstrates the firm's capacity to fulfill its immediate obligations.
Instead of being employed in inventory valuation, the current ratio is used to track a company's capacity to fulfill its obligations.
Hence option 1 is the correct answer.
