Cash
Bank balance
Debtors
Stock
Answer is Right!
Answer is Wrong!
The correct answer is D. Stock.
Liquidity ratios measure a company’s ability to meet its short-term obligations. They do this by comparing a company’s current assets to its current liabilities. Current assets are assets that can be converted into cash within one year, while current liabilities are liabilities that must be paid within one year.
Cash, bank balance, and debtors are all current assets. They can all be converted into cash within one year. Stock, on the other hand, is not a current asset. It is an inventory asset. Inventory is not expected to be converted into cash within one year.
Therefore, stock is not included in liquidity ratios.
Here is a brief explanation of each option:
- Cash: Cash is the most liquid asset. It can be used to pay off any debts that are due immediately.
- Bank balance: A bank balance is also a very liquid asset. It can be used to transfer money to another account or to withdraw cash.
- Debtors: Debtors are customers who owe money to a company. They are considered to be current assets because they are expected to be paid within one year.
- Stock: Stock is inventory that a company has on hand. It is not considered to be a current asset because it is not expected to be sold and converted into cash within one year.