Which of the following is not a measure of short-term liquidity?

Question

Which of the following is not a measure of short-term liquidity?

BlackTom AI · Accepted Answer

To evaluate short-term liquidity, we look at measures that reflect a firm's ability to meet near-term obligations.
Option 1: Working capital. This metric (current assets minus current liabilities) directly reflects the liquidity cushion a company has to cover short-term needs, so it is indeed a measure of short-term liquidity.
Option 2: Quick ratio. Also known as the acid-test ratio, it refines liquidity by excluding inventories from current assets, still focusing on the ability to cover short-term liabilities without liquidating inventory. This is a measure of short-term liquidity.
Option 3: Debt ratio. This ratio compares total debt to total assets and assesses long-term solvency and leverage rather than immediate liquidity. It does not specifically measure the ability to meet short-term obligations, making it not a short-term liquidity metric.
Option 4: Current ratio. This ratio compares current assets to current liabilities and directly evaluates the capacity to pay near-term obligations, a classic short-term liquidity measure.
Overall, options 1, 2, and 4 assess liquidity over the near term, while option 3 focuses on long-term leverage and solvency rather than short-term liquidity.

Introduction to Financial Accounting M6: Quiz

Which of the following is not a measure of short-term liquidity?

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Similar Questions

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