Which of the following ratios is the best measure of liquidity?
A) Debt-to-equity ratio
B) Times-interest-earned ratio
C) Return on assets ratio
D) Quick ratio

Question

Quizplus · Accepted Answer

The quick ratio (also known as the acid-test ratio) measures a company's ability to meet its short-term obligations with its most liquid assets. It excludes inventory and other less liquid assets and focuses on cash, accounts receivable, and short-term investments. Generally, a quick ratio of at least 1:1 is considered a good measure of liquidity. The other options (A, B, and C) are all measures of solvency, profitability, or debt management, which are important but not specifically related to liquidity.

Which of the Following Ratios Is the Best Measure of Liquidity