The ability of a business to meet its debts as they fall due is known as

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BlackTom AI · Accepted Answer

Question restatement: The ability of a business to meet its debts as they fall due is known as the concept of liquidity.

Option a: profitability. This choice refers to the ability of a company to generate profit from its operations, typically measured by net income or profit margins. It does not describe the capability to pay debts as they come due, which is about cash flow and liquidity, not earning capacity.

Option b: stability. Stability relates to the overall financial soundness and resilience of a firm, including its capital structure and long-term viability. While related to financial health, it is too broad and does not specifically denote the capacity to meet short-term obligations as they become due.

Option c: efficiency. Efficiency concerns how well a firm utilizes its resources to generate outputs, often measured by asset turnover or labor productivity. It is about operations and resource use rather than the timing of debt payments, so it does not capture the concept of meeting debts when due.

Option d: liquidity. Liquidity denotes the ease with which assets can be converted into cash to settle short-term liabilities. It directly answers the question about meeting debts as they fall due, reflecting the firm’s cash flow position and ability to cover current obligations.

In summary, each option targets a distinct financial concept, but only liquidity specifically describes the capacity to meet debts as they come due. This makes liquidity the appropriate term for the given statement.

The ability of a business to meet its debts as they fall due is known as

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