Which of the following ratios is most useful in evaluating liquidity?
A)Acid-test ratio.
B)Return on equity.
C)Profit margin ratio.

Question

Quizplus · Accepted Answer

The acid-test ratio (also known as quick ratio) is the most useful ratio for evaluating liquidity as it measures a company's ability to pay off its current liabilities using only its most liquid assets (cash, marketable securities, and accounts receivable). This ratio provides a clearer picture of a company's ability to meet short-term obligations without relying on inventory sales. Return on equity (B) and profit margin ratio (C) are both important measures of a company's profitability, but do not directly measure its liquidity.

Which of the Following Ratios Is Most Useful in Evaluating