The acid-test ratio shows the ability of a business to pay all of its current liabilities if they came due immediately.

Question

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The acid-test ratio, also known as the quick ratio, is a financial ratio that measures a business's ability to pay off all its current liabilities if they came due immediately, without relying on the sale of inventory. It is a stricter measure of liquidity than the current ratio, which includes inventory in its calculation. Therefore, it is true that the acid-test ratio shows a business's ability to pay all its current liabilities if they came due immediately.

The Acid-Test Ratio Shows the Ability of a Business to Pay