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Which type of ratios focus on the ability of a firm to meet its short-term financial obligations?

A) activity ratios
B) liquidity ratios
C) leverage ratios
D) profitability ratios

1 Answer

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Final answer:

Liquidity ratios are the financial metrics that assess a company's capability to meet its short-term financial obligations. They include the current, quick, and cash ratios, which are critical for evaluating a firm's short-term financial health.

Step-by-step explanation:

The type of ratios that focus on the ability of a firm to meet its short-term financial obligations are B) liquidity ratios. Liquidity ratios measure a company's ability to pay off its current debts without raising external capital and include ratios like the current ratio, quick ratio (also known as the acid-test ratio), and cash ratio. These ratios are crucial for creditors and investors as they evaluate the short-term financial health of a company and its efficiency in managing working capital.

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User Sok Chanty
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