A Deficiency of the Standard Measures of Liquidity Is That

question 71

Multiple Choice

A deficiency of the standard measures of liquidity is that the measures:

• A) ignore a firm's reserve borrowing capacity.
• B) fail to include accounts receivable as an asset.
• C) give inventories equal weighting in the quick ratio.
• D) do not include the current portions of long-term debt.

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Definitions:

Statement of Cash Flows

A financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents.

Long-Term Capital Gains

Profits from the sale of an asset held for more than a specified period, typically taxed at a lower rate than short-term gains.

Dividends

Payments made by a corporation to its shareholder members, typically from profits or reserves.

Ordinary Income

Income earned from conducting standard business operations, as opposed to capital gains or investment income.