Answer: Defensive interval ratio

## Explanation **Liquidity ratios** measure a company's ability to meet its short-term obligations using its most liquid assets. Let's analyze each option: **A. Defensive interval ratio** - This is a liquidity ratio that measures how many days a company can operate using only its most liquid assets (cash, marketable securities, and receivables) without needing additional cash inflows. It's calculated as: ``` Defensive Interval Ratio = (Cash + Marketable Securities + Receivables) / Daily Operating Expenses ``` This is indeed a liquidity ratio. **B. Inventory turnover ratio** - This is an **activity ratio** (also called efficiency ratio) that measures how efficiently a company manages its inventory. It's calculated as: ``` Inventory Turnover = Cost of Goods Sold / Average Inventory ``` While related to working capital management, this is not classified as a liquidity ratio. **C. Working capital turnover ratio** - This is also an **activity ratio** that measures how efficiently a company uses its working capital to generate sales. It's calculated as: ``` Working Capital Turnover = Revenue / Average Working Capital ``` This measures efficiency, not liquidity. **Key distinction**: - **Liquidity ratios**: Focus on short-term solvency (ability to pay current liabilities) - Current ratio, quick ratio, cash ratio, defensive interval ratio - **Activity ratios**: Focus on efficiency of asset utilization - Inventory turnover, receivables turnover, working capital turnover Therefore, only the **defensive interval ratio (Option A)** is a true liquidity ratio.

Author: LeetQuiz .