Which of the following statements about the acid-test ratio is TRUE?
A) The acid-test ratio measures profitability.
B) Prepaids are included when computing the acid-test ratio.
C) The lower the acid-test ratio is the better able a company is to pay its current liabilities.
D) An acid-test ratio of 0.90 to 1.00 is considered good in most industries.

Question

Quizplus · Accepted Answer

The acid-test ratio, also known as the quick ratio, measures a company's ability to pay its current liabilities without relying on the sale of inventory. It is a more stringent measure than the current ratio because it excludes inventory and other less liquid assets. A ratio of 0.90 to 1.00 indicates that a company has 90 cents of liquid assets for every dollar of current liabilities, which is generally considered acceptable in many industries, though opinions on what constitutes a "good" ratio can vary by industry and economic conditions.

Which of the Following Statements About the Acid-Test Ratio Is