The correct answer is: B. 1, 2, 4 and 3
The liquidity of a company is its ability to meet its short-term obligations. The four ratios you have listed are all liquidity ratios, and they measure the company’s ability to pay its short-term debts.
The basic defensive interval ratio is the most conservative of the four ratios. It measures the number of days that a company can operate without having to generate any new cash flow. It is calculated by dividing the company’s cash and cash equivalents by its average daily operating expenses.
The current ratio is a more common liquidity ratio. It measures the company’s ability to pay its short-term debts with its current assets. It is calculated by dividing the company’s current assets by its current liabilities.
The quick ratio is a stricter measure of liquidity than the current ratio. It measures the company’s ability to pay its short-term debts with its most liquid assets, which are cash, cash equivalents, and short-term investments. It is calculated by dividing the company’s quick assets by its current liabilities.
The super quick ratio is the strictest measure of liquidity. It measures the company’s ability to pay its short-term debts with its most liquid assets, which are cash and cash equivalents. It is calculated by dividing the company’s cash and cash equivalents by its current liabilities.
Therefore, the liquidity of the four ratios in descending order is:
- Basic defensive interval ratio
- Current ratio
- Quick ratio
- Super quick ratio