alleryStart learning →What are the three main measures of liquidity?
AGross profit, net profit and retained earnings
BCurrent ratio, acid-test ratio and net working capital
CInventory turnover, receivables and payables
DDebt-to-equity, return on equity and net worth
Answer & Solution
Correct answer: B. Current ratio, acid-test ratio and net working capital
1. Liquidity is measured three ways: the current ratio, the acid-test or quick ratio, and net working capital.
2. The current ratio and the acid-test ratio are true ratios, both dividing current assets by current liabilities.
3. Net working capital is not really a ratio, since it subtracts current liabilities from current assets to leave a dollar amount.
4. Return on equity and debt-to-equity belong to the profitability and debt families, so they answer a different question.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 14 "Using Financial Information and Accounting", section 14.7 Analyzing Financial Statements_
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