Question

Which of the following ratios are measures of a firm's liquidity?

I. cash coverage ratio
II. interval measure
III. debt-equity ratio
IV. quick ratio

A. I and III only

B. II and IV only

C. I, III, and IV only

D. I, II, and III only

E. I, II, III, and IV

Answer 1

The ratios that measure a firm's liquidity are the cash coverage ratio, the interval measure, and the quick ratio.

Step-by-step explanation:

The ratios that measure a firm's liquidity are the cash coverage ratio, the interval measure, and the quick ratio. These ratios assess a company's ability to meet its short-term obligations and manage its current assets. The cash coverage ratio measures a firm's ability to cover its interest payments with its cash flow, while the interval measure evaluates how long a company can sustain its current level of operations using its liquid assets. The quick ratio, also known as the acid-test ratio, measures a company's ability to meet its short-term liabilities with its most liquid assets.

For example, if a firm has a high cash coverage ratio, it indicates that it has sufficient cash flow to cover its interest expenses. On the other hand, a low quick ratio could suggest that a company may struggle to pay its short-term obligations due to a lack of easily convertible assets.