Which ratios would a banker be most interested in when considering whether to approve an application for a short-term business loan? Explain.

Bankers and other lenders use liquidity ratios to see whether to extend short-term credit to a firm.  Liquidity ratios measure the ability of a firm to meet its short-term obligations.  These ratios are important because failure to pay such obligations can lead to bankruptcy.  Generally, the higher the liquidity ratio, the more able a firm is to pay its short-term obligations