what does 4:1 liquid ratio indicate?

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Solution

Dear Student

Liquid Ratio= $\frac{L i q u i d a s s e t s}{C u r r e n t L i a b i l i t i e s}$ .
4:1 Liquid ratio simply tells us that, Firm has 4times Liquidity to pay its current liabilities. i.e Liquid assets are four times as compared to Current liabilities and hence Firm is Solvent.

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