Which two ratios are used to measure liquidity?

• A. Current ratio and Quick ratio
• B. Debt ratio and Interest coverage
• C. Gross margin and Operating margin
• D. Return on assets and Return on equity

Answer: (A)

Liquidity measures a company’s ability to meet short‑term obligations using its most liquid assets. The two ratios used for this are the current ratio and the quick ratio. The current ratio compares current assets to current liabilities, showing how many dollars of assets are available to cover each dollar of short‑term debt. The quick ratio tightens this by excluding inventory, since inventory isn’t as readily convertible to cash, giving a stricter view of near‑term liquidity. The other pairs focus on long‑term solvency (debt levels and interest coverage) or on profitability (gross and operating margins) or on overall returns (return on assets and return on equity), not liquidity. So the liquidity pair is current ratio and quick ratio.