Which of the following ratios is most useful in evaluating liquidity Quizlet

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An analyst observes the following data for two companies:

Company A ($) Company B ($)
Revenue 4,500 6,000
Net income 50 1,000
Current assets 40,000 60,000
Total assets 100,000 700,000
Current liabilities 10,000 50,000
Total debt 60,000 150,000
Shareholders' equity 30,000 500,000

Which of the following choices best describes reasonable conclusions that the analyst might make about the two companies' ability to pay their current and long-term obligations?

Company A's current ratio of 4.0 indicates it is more liquid than Company B, whose current ratio is only 1.2, but Company B is more solvent, as indicated by its lower debt-to-equity ratio.

Company A's current ratio of 0.25 indicates it is less liquid than Company B, whose current ratio is 0.83, and Company A is also less solvent, as indicated by a debt-to-equity ratio of 200 percent compared with Company B's debt-to-equity ratio of only 30 percent.

Company A's current ratio of 4.0 indicates it is more liquid than Company B, whose current ratio is only 1.2, and Company A is also more solvent, as indicated by a debt-to-equity ratio of 200 percent compared with Company B's debt-to-equity ratio of only 30 percent.

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Which ratio is most useful in evaluating liquidity?

One of the liquidity ratios is the current ratio. The current ratio includes assets and liabilities that are paid within a year and the higher this ratio indicates higher the liquidity position of the company.

Which of the following ratios is most useful in evaluating profitability?

Gross profit margin is one of the most widely used profitability or margin ratios.

Which of the following ratios would be useful in assessing short term liquidity?

Explanation: The acid-test ratio is the ratio of quick assets relative to the current liabilities and quick assets are assets that can be converted into cash within a period of three months or less. Quick assets are used to repay the current liabilities of the company and the ratio indicates the short-term liquidity.

Which of the following ratios would be most useful in determining a company's s ability to cover its debt payments?

Solvency Ratios A solvency ratio assesses a corporation's ability to cover protracted debt with cash flow. Solvency ratios are a critical statistic for measuring a company's financial health which can be used to predict whether or not it will fail on its obligations.