Which of the following ratios is a measure of a company's ability to pay all current liabilities if they come due immediately?
A) The inventory turnover ratio
B) The times-interest-earned ratio
C) The acid-test ratio
D) The debt ratio

Question

Quizplus · Accepted Answer

The Acid-test ratio, also known as the quick ratio, measures a company's ability to pay all of its current liabilities if they come due immediately using its most liquid assets such as cash and short-term investments. It excludes inventory from its calculation because it is not always easy to convert inventory to cash in the short term. A higher acid-test ratio is desirable as it shows that the company has enough liquid assets to cover its short-term obligations.

Which of the Following Ratios Is a Measure of a Company's