Santos’s executives are most interested in seeing the company’s liquid

QUESTION

Santos’s executives are most interested in seeing the company’s liquidity ratios. Based on this information, what question do they most likely want to have answered?

A) Can the company pay its short-term debts without obtaining further loans?
B) Does the company have enough inventory to meet sales demands?
C) How much inventory on hand does Santos have?
D) How much bonds payable debt is Santos carrying?
E) Is the company selling products at an appropriate price?

ANSWER

Answer: A
Explanation: A) Liquidity ratios generally indicate whether Santos has the assets necessary to pay its short-term debts on time. They do not, however, tell how much long-term debt, such as bonds payable, Santos may have (Choice D). They do not directly relate to inventory on hand (Choices B and C) or product pricing (Choice E).