The ____________ of a business firm is measured by its ability to satisfy its short term obligations as they become due.

Activity Liquidity Debt Profitability

Liquidity

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.