Which one of the following ratios is a test of a company's short-term debt-paying ability?
A)profit margin
B)price/earnings
C)acid-test
D)times interest earned

Question

Quizplus · Accepted Answer

The acid-test ratio is a test of a company's short-term debt-paying ability. It is a measure of the company's ability to meet its short-term liabilities with its most liquid assets. The ratio is calculated by dividing the sum of its cash, marketable securities, and accounts receivable by its current liabilities. Option A (profit margin) is a measure of a company's profitability, option B (price/earnings) is a measure of a company's stock price compared to its earnings, and option D (times interest earned) is a measure of a company's ability to cover its interest charges with its earnings.

Which One of the Following Ratios Is a Test of a Company's