Series 7 Exam Question 405: Answer and Explanation

Question: 405

Which of the following ratios does not measure the liquidity of a company?

• A. Current ratio
• B. Quick ratio
• C. Ratio of cash and securities to current liabilities
• D. Debt to equity ratio

Correct Answer: D

Explanation:

D. Debt to equity ratio is the ratio of long term debt to stockholders' equity (net worth). Therefore, the debt to equity ratio of a company measures the leverage (long term debt) of a company. The other ratios mentioned are short-term ratios measuring the liquidity of a company.