Because the assets included in the current ratio have different levels of liquidity that reflect different degrees of collectability,many companies use which of the following ratios to measure current liquidity?
A)Current ratio.
B)Acid-test.
C)Working capital.
D)Return on Equity.

Question

Quizplus · Accepted Answer

The acid-test ratio, also known as quick ratio, measures a company's ability to pay off its short-term liabilities with its most liquid assets. It does not include inventory and prepaid expenses, which are less liquid than cash, accounts receivable, and short-term investments. Therefore, it provides a more conservative and realistic assessment of a company's current liquidity than the current ratio, which includes all current assets regardless of their liquidity. Working capital and return on equity are not measures of current liquidity.

Because the Assets Included in the Current Ratio Have Different