Which of the following is true about quick ratio?
A) It is computed as quick assets multiplied by current liabilities.
B) It includes cash, inventory, and short-term investments.
C) If it is less than 1.0, it raises liquidity concerns for creditors.
D) It is a suitable measure to derive the profitability of the company.

Question

Quizplus · Accepted Answer

Quick ratio, also known as acid-test ratio, is computed as quick assets (cash, accounts receivable, and short-term investments) divided by current liabilities. If the quick ratio is less than 1.0, it indicates that the company may have difficulty paying off its short-term debts, which can raise concerns for creditors about the company's liquidity. Quick ratio is not a suitable measure to derive the profitability of the company.

Which of the Following Is True About Quick Ratio