Exam L4M4 Topic 3 Question 175 Discussion

Actual exam question for CIPS's L4M4 exam
Question #: 175
Topic #: 3
Which of the following is a measure of liquidity?

Suggested Answer: C Vote an answer

Liquidity measures a company's ability to meet short-term obligations. The current ratio = current assets รท current liabilities, indicating whether the business can cover debts due within one year. Ratios above 1 suggest healthy liquidity, though excessively high ratios may show underutilised cash. Gearing reflects debt-to-equity (solvency); ROI assesses profitability; total asset turnover measures efficiency. Responsible sourcing requires buyers to evaluate liquidity to ensure suppliers have the working capital to maintain operations and deliver reliably. Poor liquidity is a red flag for potential supply disruption.
Reference: CIPS L4M4 Study Guide (v2), LO: "Application" - financial ratios and their interpretation.

by Mildred at Nov 12, 2025, 09:21 AM

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