The quick ratio:
A) Indicates the ability of a ﬁrm to meet its current obligations without disposing of any inventory.
B) Depicts the ability of a ﬁrm to pay off its long-term debts in a timely manner.
C) Compares the current cash holdings of a ﬁrm to the current liabilities.
D) Measures a ﬁrm's ability to generate cash from its operations.
E) Indicates how quickly a ﬁrm can liquidate its inventory.

Question

Quizplus · Accepted Answer

The quick ratio, also known as the acid-test ratio, measures a firm's ability to meet its current obligations without relying on inventory. It is calculated by excluding inventory from current assets and dividing the result by current liabilities. Therefore, option A is the best choice as it correctly defines the quick ratio.

The Quick Ratio