Question

The two basic measures of liquidity are ______.

Options

• inventory turnover and current ratio

• current ratio and liquid ratio

• gross profit margin and operating ratio

• current ratio and average collection period

Answer 1

The two basic measures of liquidity are current ratio and liquid ratio.

Explanation:

The current ratio and liquid ratio are the two fundamental metrics used to check a company’s short-term liquidity. The current ratio compares total current assets against current liabilities to show broad financial health. The liquid ratio acts as a stricter test by excluding slow-moving inventory to track only assets that can instantly turn into cash to pay immediate debts.