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The ………………… of a business firm is measured by its ability to satisfy its short term obligations as they become due.

Activity

Liquidity

Debt

Profitability

- Option 1: Activity

- This refers to how efficiently a business manages its operations and resources.

- Commonly measured by ratios like inventory turnover and accounts receivable turnover.

- Option 2: Liquidity

- The correct answer.

- Liquidity measures a firm's ability to meet its short-term obligations when they are due.

- It is commonly assessed using current ratio and quick ratio.

- Option 3: Debt

- This assesses a firm's ability to handle its long-term obligations and leverage.

- Involves ratios like debt-to-equity and interest coverage.

- Option 4: Profitability

- Measures a firm's ability to generate profit relative to sales, assets, or equity.

- Includes ratios like net profit margin and return on assets.

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