The correct answer is: A. Liquidity ratio.
A liquidity ratio is a financial ratio that measures a company’s ability to pay off its short-term debts. It is calculated by dividing a company’s current assets by its current liabilities.
A current ratio of 2:1 or higher is generally considered to be healthy. This means that a company has enough current assets to cover its current liabilities two times over.
A current ratio of less than 1:1 may be cause for concern, as it suggests that a company may not be able to pay its short-term debts if they come due.
The current ratio is a useful tool for investors and creditors to assess a company’s financial health. However, it is important to note
that it is only one measure of liquidity, and it should not be used in isolation. Other factors, such as a company’s cash flow and debt load, should also be considered when assessing a company’s liquidity.The other options are incorrect because:
- Option B, Current ratio, is a type of liquidity ratio.
- Option C, Acid-Test (or Quick) ratio, is a type of liquidity ratio that measures a company’s ability to pay off its short-term debts without relying on the sale of inventory.
- Option D, Debts ratio, is a type of financial ratio that measures a company’s financial leverage.