Which ratio measures the company's ability to satisfy its short-term obligations as they become due?
Answer & explanation
Correct answer: option 1
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.