Which of the following describes the key significance of the acid ratio?
A) It measures a company's ability to pay its current liabilities by using its current assets.
B) It measures the profitability of a company.
C) It reflects how much long-term debt a company has.
D) It indicates how much cash could be realized by selling off all the inventory.

Question

Quizplus · Accepted Answer

The acid ratio, also known as the quick ratio, measures a company's ability to pay its current liabilities using its current assets. It excludes inventory from the calculation, as inventory may take longer to convert to cash. The higher the acid ratio, the better the company's short-term liquidity position.

Which of the Following Describes the Key Significance of the Acid