Banking Awareness Questions Set 92 (Liquidity Metrics & Ratios – Finance)

 

 

Banking Awareness Questions for upcoming banks and insurance exams SBI PO, IBPS PO/Clerk, Federal Bank, RRB PO/Clerk, RBI, IPPB.

In accounting, liquidity (or accounting liquidity) is a measure of the ability of a debtor to pay their debts as and when they fall due. It is usually expressed as a ratio or a percentage of current liabilities. Liquidity is the ability to pay short-term obligations.

  1. What is the metric which defines operating liquidity available to business known as? [Asked in SBI PO Main 2017 Exam]
    A) Quick ratio
    B) Accounts payable turnover
    C) Working capital
    D) Cash conversion cycle
    View Answer
    Option C
    Some Extra:
    The liquidity metric Working capital is defined simply as the difference between two Balance sheet figures:

    Working capital = Current assets – Current liabilities
  2. What is the metric that measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately known as?
    A) Acid test ratio
    B) Current ratio
    C) Overtrading
    D) Cash conversion cycle
    View Answer
    Option A
    Some Extra:
    In finance, the acid-test or quick ratio or liquidity ratio measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately.

  3. What is the metric that measures whether or not a firm has enough resources to meet its short-term obligations known as?
    A) Acid test ratio
    B) Current ratio
    C) Overtrading
    D) Financial accounting
    View Answer
    Option B
    Some Extra:
    The current ratio is called “current” because, unlike some other liquidity ratios, it incorporates all current assets and liabilities.

    The current ratio is also known as the working capital ratio.
    Current Ratio = Current Assets / Current Liabilities
  4. What is the metric that measures how long a firm will be deprived of cash if it increases its investment in resources in order to expand customer sales known as?
    A) Quick ratio
    B) Accounts payable turnover
    C) Days payable outstanding
    D) Cash conversion cycle
    View Answer
    Option D
    Some Extra:
    In management accounting, the Cash conversion cycle (CCC) measures how long a firm will be deprived of cash if it increases its investment in resources in order to expand customer sales. It is thus a measure of the liquidity risk entailed by growth.
  5. What is the metric that measures the number of times that a firm pays off its suppliers during the accounting period known as?
    A) Accounts payable turnover
    B) Financial accounting
    C) Days payable outstanding
    D) Cash conversion cycle
    View Answer
    Option A
    Some Extra:
    The accounts payable turnover ratio is a short-term liquidity measure used to quantify the rate at which a company pays off its suppliers. Accounts payable turnover ratio is calculated by taking the total purchases made from suppliers, or cost of sales, and dividing it by the average accounts payable amount during the same period.
  6. What is the metric that measures the average number of days the company takes to payoff outstanding bills known as?
    A) Accounts payable turnover
    B) Financial accounting
    C) Days payable outstanding
    D) Quick ratio
    View Answer
    Option C
    Some Extra:
    Days payable outstanding (DPO) is an efficiency ratio that measures the average number of days a company takes to pay its suppliers.
  7. What is the metric that measures a company’s ability to meet its financial obligations known as?
    A) Market Ratio
    B) Debt Ratio
    C) Coverage Ratio
    D) Asset Coverage Ratio
    View Answer
    Option C
    Some Extra:
    The coverage ratio is a measure of a company’s ability to meet its financial obligations. In broad

    terms, the higher the coverage ratio, the better the ability of the enterprise to fulfill its obligations to its lenders.
  8. What is the test that determines a company’s ability to cover debt obligations with its assets after all liabilities have been satisfied known as?
    A) Key Ratio
    B) Debt Ratio
    C) Coverage Ratio
    D) Asset Coverage Ratio
    View Answer
    Option D
  9. What is the ratio that measures the extent of a company’s or consumer’s leverage known as?
    A) Key Ratio
    B) Debt Ratio
    C) Quick Ratio
    D) Leverage Ratio
    View Answer
    Option B
    Some Extra:
    It is a financial ratio that measures the extent of a company’s or consumer’s leverage. The debt ratio is defined as the ratio of total – long-term and short-term – debt to total assets, expressed as a decimal or percentage.
  10. What is the measurement that look at how much capital comes in the form of debt (loans), or assesses the ability of a company to meet financial obligations known as?
    A) Key Ratio
    B) Debt Ratio
    C) Quick Ratio
    D) Leverage Ratio
    View Answer
    Option D
    Some Extra:
    Leverage ratio in simple terms is the relation between the amount of equity that a company has and the amount of debt that it is carrying in its books. It is a measurement of the capacity of the company to meet its financial obligations.

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