Which set of measures describes how easily assets can be turned into cash?

Which set of measures describes how easily assets can be turned into cash?

• A. Activity Ratios
• B. Leverage (Debt) Ratios
• C. Profitability Ratios
• D. Liquidity Ratios

Answer: (D)

Liquidity is the focus here—the ease with which assets can be converted into cash to meet short-term obligations. Liquidity ratios measure this ability, showing how well a company can cover its current liabilities with near-term assets. Common examples include the current ratio, the quick (acid-test) ratio, and the cash ratio, which collectively indicate how much cash or cash-equivalents and other quick assets are available relative to short-term obligations. Other families of ratios look at different angles: activity ratios assess how efficiently assets are used to generate sales, leverage ratios examine debt levels and financial risk, and profitability ratios measure how effectively a company turns sales into profit. Since the question asks about how easily assets can be turned into cash, liquidity ratios are the most appropriate.

Liquidity is the focus here—the ease with which assets can be converted into cash to meet short-term obligations. Liquidity ratios measure this ability, showing how well a company can cover its current liabilities with near-term assets. Common examples include the current ratio, the quick (acid-test) ratio, and the cash ratio, which collectively indicate how much cash or cash-equivalents and other quick assets are available relative to short-term obligations.

Other families of ratios look at different angles: activity ratios assess how efficiently assets are used to generate sales, leverage ratios examine debt levels and financial risk, and profitability ratios measure how effectively a company turns sales into profit. Since the question asks about how easily assets can be turned into cash, liquidity ratios are the most appropriate.