Most firms borrow money to finance some of their assets, and most will choose to borrow some long-term funds and some short-term funds. Which group of lenders would put greater emphasis on a firm's liquidity ratio when evaluating a potential borrower?

Question

Business

Jasmine Galloway

12 July, 13:48

Most firms borrow money to finance some of their assets, and most will choose to borrow some long-term funds and some short-term funds. Which group of lenders would put greater emphasis on a firm's liquidity ratio when evaluating a potential borrower?

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Answers (1)

Know the Answer?

Roger Lane · Answer 1

The correct answer is letter "B": Short-term lenders.

Explanation:

Liquidity Ratios are financial metrics that calculate the capacity of a company to pay its short-term debt. Such ratios are a significant source of financial stability for the company. Liquidity ratios compare the most liquid assets of a company or those that are quickly converted to cash with their short-term liabilities. Examples of liquidity ratios are the acid test ratio and current ratio.