Which Ratio Is a Test of Liquidity

question 134

Multiple Choice

Which ratio is a test of liquidity?

• A)Net profit margin
• B)Inventory turnover
• C)Times interest earned
• D)Debt-to-assets

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Definitions:

Monthly Compounded

Pertains to interest or any financial metric that is calculated and added to the principal balance every month.

Nominal Rate

The stated interest rate of a bond or loan, not accounting for compounding or inflation effects.

Annually Compounded

An investment or interest calculation method where the interest earned over the year is added to the principal at year-end, affecting the amount earned the following year.

Nominal Rate

The nominal rate refers to the interest rate stated on a loan or investment agreement before adjusting for inflation or other factors.