What does liquidity ratio measure?

A. measures operating efficiency of a company
B. measures the ability of a company to meet its current obligations.
C. measures the value of investments of a company
D. measures the financial leverage of a company

Correct Answer:

Option B – measures the ability of a company to meet its current obligations.

Explanation

Liquidity ratio attempts to measure the ability to meet up with current obligations e.g. current ratio which measures the current asset to current liabilities.