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    Question

    Which of the following is classified as a liquidity

    ratio?
    A Equity ratio Correct Answer Incorrect Answer
    B Proprietary ratio Correct Answer Incorrect Answer
    C Net Working Capital Correct Answer Incorrect Answer
    D Capital Gearing ratio Correct Answer Incorrect Answer
    E Debt-Equity ratio Correct Answer Incorrect Answer

    Solution

    • Liquidity ratios measure a company’s ability to meet its short-term obligations using short-term assets. • Net Working Capital (NWC) is a liquidity measure calculated as: NWC=Current Assets−Current Liabilities It indicates whether the firm has enough current assets to cover its short-term debts. • Other ratios in the options: o Equity ratio → Solvency ratio (long-term financial stability). o Proprietary ratio → Solvency ratio (shareholders’ funds vs. total assets). o Capital gearing ratio → Leverage ratio (proportion of debt vs. equity). o Debt-Equity ratio → Solvency/leverage ratio.

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