The two basic measures of liquidity are:

The correct answer is Option (3) → Current ratio and liquid ratio

Liquidity is the firm's ability to meet its short-term obligations as they fall due. It is measured by comparing current assets with current liabilities: the current ratio uses all current assets, and the liquid (quick) ratio leaves out inventory and prepaid expenses to test the most liquid assets alone. Inventory turnover and the average collection period are activity ratios; they show speed, not the ability to pay.