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FIPA 2 Exam 2 Practice Exam

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If a liquidity metric around 4.0 describes which ratio?
Correct Answer:
Current ratio
Explanation:
Liquidity measures show how well a company can meet short-term obligations. A value around 4.0 means current assets are about four times current liabilities, giving a big cushion to cover near-term debts. That description fits the current ratio, which is current assets divided by current liabilities. The acid-test ratio is a stricter measure that excludes inventory, and while it can be high, the common interpretation for a four-to-one figure is the broad current ratio. Gross margin and net profit margin, by contrast, relate to profitability, not liquidity.

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