Answer (D) is correct . Liquidity is a firm’s ability to pay its current obligations as they come due and thus remain in business in the short run. This is the area of most concern when considering granting credit to a customer.
Answer (A) is incorrect because Profit margin and return on assets are not the best indicators of liquidity, which is the area of most concern when considering granting credit to a customer.
Answer (B) is incorrect because The price-earnings ratio is not the best indicator of liquidity, which is the area of most concern when considering granting credit to a customer.
Answer (C) is incorrect because Return on equity is not the best indicator of liquidity, which is the area of most concern when considering granting credit to a customer.
