Accountancy Part BAccounting Ratios

Identify the ratios that are calculated to measure the short-term sol…

Identify the ratios that are calculated to measure the short-term solvency of the business.

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → Liquidity ratios

Liquidity ratios (current ratio and quick ratio) measure the short-term solvency of a business – its ability to meet current obligations. Solvency ratios look at long-term solvency, activity ratios at efficiency, and profitability ratios at earnings.

NCERT (2026-27 edition):
Liquidity Ratios – “Liquidity ratios are calculated to measure the short-term solvency of the business, i.e. the firm’s ability to meet its current obligations. These are analysed by looking at the amounts of current assets and current liabilities in the balance sheet. The two ratios included in this category are current ratio and liquidity ratio.”