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.
