Because a company's inventory is less liquid than its other current assets when investors are assessing liquidity, they should examine the:
A)debt-equity ratio.
B)accounts receivable turnover ratio.
C)acid test ratio.
D)current ratio.

Question

Quizplus · Accepted Answer

The acid test ratio, also known as the quick ratio, only includes a company's most liquid assets, such as cash, marketable securities, and accounts receivable. Since inventory is not considered a highly liquid asset, it is not included in this ratio. Therefore, examining the acid test ratio would provide a clearer picture of a company's liquidity than the other options listed.

Because a Company's Inventory Is Less Liquid Than Its Other