Which of the following ratios would be the most useful to assess the risk associated with a firm being able to pay off its short-term line of credit?
A) return on equity
B) the acid test ratio
C) the operating profit margin
D) the fixed asset turnover

Question

Quizplus · Accepted Answer

The acid test ratio, also known as the quick ratio, measures a company's ability to pay off its current liabilities with its current assets excluding inventory. This ratio provides insight into a company's ability to meet short-term financial obligations and is therefore useful in assessing the risk associated with a firm being able to pay off its short-term line of credit. Return on equity, operating profit margin, and fixed asset turnover do not provide specific information on a company's ability to meet short-term financial obligations.

Which of the Following Ratios Would Be the Most Useful