A liquidity crisis occurs when current liabilities exceed current assets, indicating the firm cannot meet its short-term obligations.

• A. Liquidity crisis
• B. Solvency issue
• C. Profitability problem
• D. Break-even point

Answer: (A)

The main idea here is liquidity and working capital. Current assets are the resources a firm can convert to cash within a year, while current liabilities are obligations due within the same period. When current liabilities exceed current assets, the business lacks enough liquid resources to meet its near-term obligations, which is a liquidity crisis because day-to-day cash flow becomes tight and the firm may struggle to pay suppliers, employees, or other debts as they come due. This is about short-term cash availability, not long-term solvency. Profitability and break-even relate to earning and covering costs, not the ability to cover debts in the near term. For example, having 60k in current assets versus 75k in current liabilities signals potential cash flow problems that need urgent financing or working capital management.