Total Liquidity Ratio

B

The given formula of total liquid assets divided by total current debts is a measure of liquidity, which is the ability to convert assets into cash quickly to pay off short-term debts. The formula is commonly known as the Current Ratio or Working Capital Ratio, which is calculated by dividing current assets by current liabilities.

The correct answer to the given question is option B - Liquidity ratio. The liquidity ratio is a financial metric that measures a company's ability to meet its short-term obligations using its liquid assets. It determines the company's ability to pay off its short-term debt with its readily available cash and cash equivalents.

The liquidity ratio is important because it helps the company and its creditors understand the financial health of the company in the short-term. If the ratio is too low, it may indicate that the company has insufficient liquid assets to meet its short-term obligations and may be at risk of defaulting on its debts. Conversely, if the ratio is too high, it may indicate that the company is not investing its assets wisely and could be missing out on growth opportunities.

On the other hand, Solvency Ratio (Option A) measures a company's ability to meet its long-term debt obligations. It indicates the proportion of the company's assets that are financed by debt. A higher solvency ratio indicates that the company is financially stable and has a lower risk of defaulting on its long-term debt obligations.

The Savings Ratio (Option C) is a personal finance metric that calculates the percentage of an individual's income that is saved. It helps an individual understand how much they are saving compared to their income.

The Debt Service Ratio (Option D) is a financial metric that measures the borrower's ability to repay debt obligations based on their income. It is commonly used by lenders to assess the borrower's creditworthiness and ability to repay loans.