Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Accounting Ratios

Question:

Which of the following is measure of liquidity of a concern?

Options:

Inventory turnover and Current ratio

Current ratio and Quick ratio

Gross Profit ratio and Operating ratio

Current ratio and Average Collection period

Correct Answer:

Current ratio and Quick ratio

Explanation:

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.