NABTEB Accounting 2024 Theory — Question 6

Model answer

Accounting ratios are metrics used to measure the efficiency and profitability of a company based on its financial reports, expressing the relationship between one accounting figure and another. A liquidity ratio is a type of financial ratio used to determine a company's ability to pay its short-term debt obligations using its current or liquid assets. An example is the current ratio (Current assets / Current liabilities).