alleryStart learning →A firm that can pay next month's bills but not its ten-year debt is strong in which respect only?
ALiquidity
BSolvency
CProfitable
DEfficiency
Answer & Solution
Correct answer: A. Liquidity
1. The two horizons are measured by different ratio families.
2. There are four main types of ratios, including liquidity and solvency.
3. Solvency implies a company can meet its long-term obligations.
4. This firm cannot meet its long-term debt, so solvency is weak.
5. Short-term capacity is what liquidity measures, so liquidity is the strength.
_Source: OpenStax Principles of Finance (CC BY 4.0), Ch 6 'Measures of Financial Health'_
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