The current ratio and the acid test ratio are both measures of financial leverage.

Question

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Both the current ratio and the acid test ratio are measures of liquidity, not financial leverage. The current ratio measures a company's ability to pay its short-term liabilities with its short-term assets, while the acid test ratio measures a company's ability to pay its short-term liabilities with its most liquid assets. Leverage refers to a company's use of debt financing to generate greater returns for its shareholders.

The Current Ratio and the Acid Test Ratio Are Both