Which of the Following Ratios Would Be the Most Useful

question 97

Multiple Choice

Which of the following ratios would be the most useful in evaluating the ability of a firm to meet its short-term obligations?

• A) The quick ratio (acid test)
• B) Return on equity
• C) Total asset turnover
• D) Operating profit margin

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Definitions:

Capital Deficiency

A situation where a company's liabilities exceed its assets, indicating potential insolvency or a need for additional funding.

Credit Balances

Balances in financial accounts that signify amounts owed to others, which are common in liability accounts, equity accounts, and revenue accounts.

Capital Balances

The amount of money that owners have invested in a company minus any withdrawals they have made from the company.

Income Ratios

Financial metrics that compare various components of income to detect insights and trends within a company’s financial performance.