Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter16: Financial Statement Analysis
Section: Chapter Questions
Problem 1DQ
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Question
can you help me understand the liquidity ratio?
Expert Solution
Step 1
INTRODUCTION
It is a ratio which the capability of a company to pay off its debts as and when they become due. We can say that this ratio shows that how fast a company can convert its current assets into cash so that it can pay off its debts on time.
The higher ratio means that the business has the ability to meet its current obligations. A good liquidity ratio is considered to be greater than 1. This ratio is generally used by creditors and lenders for providing credit.
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