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Three Measures of Liquidity Are Working Capital, Current Ratio, and Acid-Test

question 49

Essay

Three measures of liquidity are working capital, current ratio, and acid-test ratio.What do each of these measures show, and how are they each calculated?


Definitions:

Risk-Free Rate

The theoretical rate of return on an investment with zero risk, often represented by the yield on government securities.

Put Bonds

Bonds that grant the holder the right to force the issuer to buy back the bond at a predetermined price before maturity.

Convertible

A financial security (for example, a bond or a preferred stock) that can be converted into a different form, often common stock.

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