A business ensures all its debts are paid as they fall due - HSC - SSCE Business Studies - Question 4 - 2017 - Paper 1
Question 4
A business ensures all its debts are paid as they fall due.
Which financial objective is the business satisfying?
A. Efficiency
B. Growth
C. Liquidity
D. Solvency
Worked Solution & Example Answer:A business ensures all its debts are paid as they fall due - HSC - SSCE Business Studies - Question 4 - 2017 - Paper 1
Step 1
Identify the context of the question
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Answer
The question describes a business that ensures all debts are paid as they become due. This indicates a focus on the business's financial obligations and its ability to meet them.
Step 2
Evaluate the options provided
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Answer
A. Efficiency: This relates to how well a business uses its resources to generate profit but does not directly address debt obligations.
B. Growth: This refers to increasing business size or revenue, which is not the core issue of debt payment.
C. Liquidity: This term describes the ability of a company to meet its short-term financial obligations. Paying debts as they fall due is a clear indication of having sufficient liquidity.
D. Solvency: This refers to the ability to meet long-term debts and financial obligations, although liquidity is more about short-term payment capabilities.
Step 3
Select the correct answer
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Answer
Given the context, the correct financial objective being satisfied by the business, as it ensures all debts are paid as they fall due, is C. Liquidity.
