A more stringent measure of liquidity than the current ratio is referred to as
A)current asset turnover.
B)acid-test.
C)collectability test.
D)debt to equity ratio.

Question

Quizplus · Accepted Answer

The acid-test ratio, also known as the quick ratio, is a more stringent measure of liquidity than the current ratio because it only measures a company's ability to meet short-term obligations with its most liquid assets (cash, marketable securities, and accounts receivable) excluding inventory. This ratio provides a more accurate representation of a company's immediate liquidity position. The other choices – current asset turnover, collectability test, and debt to equity ratio – do not measure liquidity in the same way as the acid-test ratio.

A More Stringent Measure of Liquidity Than the Current Ratio