Which term refers to a company having enough cash or convertible assets to pay its current liabilities?

• A. Leverage
• B. Solvency
• C. Liquidity
• D. Profitability

Answer: (C)

Verified step by step guidance

1. Understand the concept of liquidity: Liquidity refers to a company's ability to meet its short-term obligations using cash or assets that can be quickly converted into cash.
2. Differentiate liquidity from solvency: Solvency refers to a company's ability to meet its long-term obligations, while liquidity focuses on short-term liabilities.
3. Differentiate liquidity from leverage: Leverage refers to the use of borrowed funds to finance assets or operations, which is unrelated to the ability to pay current liabilities.
4. Differentiate liquidity from profitability: Profitability measures a company's ability to generate income relative to its expenses, which does not directly address the ability to pay current liabilities.
5. Conclude that liquidity is the correct term because it specifically addresses the ability to pay current liabilities using cash or convertible assets.