Question : With respect to the liquidity Ratio, which of the following statements is incorrect?
Option 1: “Liquidity” refers to the ability of the firm to meet its current liabilities.
Option 2: Liquidity is the ease with which assets may be converted into cash without loss.
Option 3: The liquidity ratios are also called 'long-term Solvency Ratios'.
Option 4: Short-term trade payables of the firm are primarily interested in the liquidity ratios of the firm.
Correct Answer: The liquidity ratios are also called 'long-term Solvency Ratios'.
Solution : Answer = The liquidity ratios are also called 'long-term Solvency Ratios'.
Liquidity ratios assess a firm's ability to meet short-term obligations , not long-term solvency. They gauge the firm's ability to convert assets into cash and are vital for short-term creditors, not long-term solvency analysis. Hence, the correct option is 3.
Question : Liquidity refers to the ability of the firm to meet its ______________.
Question : Which ratios provide information critical to the firm's long-term operation?
Question : Which of the following statements is correct with respect to Creditors or Suppliers?
Question : Which party is interested to know the short-term solvency position of a firm, i.e., the ability to meet its short-term liabilities?
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