To test the liquidity of a concern, which of the following ratios are useful ? (i) Quick ratio (ii) Net profit

Question 27 of 38

Q. To test the liquidity of a concern, which of the following ratios are useful ?

(i) Quick ratio

(ii) Net profit ratio

(iii) Debt-equity ratio

(iv) Current ratio

(a)

(ii) and

(iii)

(b)

(i) and

(ii)

(c)

(ii) and

(iv)

(d)

(i) and (iv)

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Liquidity is tested by the Quick ratio (i) and the Current ratio (iv) — option (d).

Liquidity ratios measure a firm's ability to pay its short-term liabilities as they fall due:

Current ratio = Current Assets ÷ Current Liabilities (ideal 2:1).
Quick (liquid) ratio = Quick Assets ÷ Current Liabilities (ideal 1:1), where quick assets exclude stock and prepaid expenses. …

Q.To test the liquidity of a concern, which of the following ratios are useful ?