Question

Ratios calculated to measure the ability of the business to pay the amount due to stakeholders as and when it is due are known as ______.

Options

• Solvency ratios

• Liquidity ratios

• Activity ratios

• Profitability ratios

Answer 1

Ratios calculated to measure the ability of the business to pay the amount due to stakeholders as and when it is due are known as liquidity ratios.

Explanation:

Liquidity ratios are specifically designed to evaluate a firm’s ability to meet its immediate and short-term financial obligations. They measure how quickly a business can convert its current assets into cash to pay off liabilities like payments to suppliers or short-term creditors exactly “as and when they fall due.” While solvency ratios also deal with debt, they focus on long-term stability, whereas liquidity is strictly about the business’s “cash-readiness” to handle upcoming payments.