Define liquidity ratios and name two commonly used in healthcare finance.

• A. Liquidity ratios measure ability to meet short-term obligations; common ones: current ratio and days cash on hand (or quick ratio).
• B. Liquidity ratios measure long-term solvency; common ones: debt-to-equity and interest coverage.
• C. Liquidity ratios measure profitability; common ones: gross margin and net margin.
• D. Liquidity ratios measure asset turnover; common ones: total asset turnover.

Answer: (A)

Liquidity ratios measure how well an organization can meet its short-term obligations using its most liquid assets. In healthcare finance, this matters because hospitals and health systems must consistently cover payroll, supplier payments, and operating expenses even if patient revenue temporarily slows.

The two commonly used measures are the current ratio and days cash on hand. The current ratio compares current assets to current liabilities to show how many dollars of assets are available per dollar of liability. Days cash on hand shows how many days the organization could continue paying operating expenses with its available cash and cash equivalents, given current spending levels. A related measure, the quick ratio, behaves like the current ratio but excludes inventories for a stricter view of liquidity.

Other options focus on different aspects, such as long-term solvency, profitability, or asset efficiency, rather than short-term liquidity.