This financial ratio measures the business's liquidity:
A. profit margin.
B. average daily rate ratio.
C. current ratio.
D. days receivable ratio.
C.
9 years ago
7 months ago
To determine which financial ratio measures a business's liquidity, you can analyze the options given:
A) Profit margin: Profit margin is a ratio that measures a company's profitability by comparing its net income to its revenue. It does not provide information about liquidity.
B) Average daily rate ratio: This ratio typically measures the average revenue earned per room in the hotel industry and does not provide information about a business's liquidity.
C) Current ratio: The current ratio is a measure of a company's ability to pay off its short-term liabilities with its short-term assets. It is widely used to assess a business's liquidity. The current ratio is calculated by dividing current assets by current liabilities. A higher current ratio suggests a more liquid business.
D) Days receivable ratio: The days receivable ratio, also known as the average collection period, measures the average number of days it takes for a company to collect payment from its customers. It focuses on the collection of accounts receivable and does not directly measure a business's liquidity.
Therefore, the correct answer is C) current ratio, which is a financial ratio that measures a business's liquidity.