A decrease in the acid-test ratio from one year to the next indicates the company's liquidity position is likely improving.

Question

Quizplus · Accepted Answer

The acid-test ratio (also known as the quick ratio) measures a company's ability to meet short-term obligations using only its most liquid assets (cash, marketable securities, and accounts receivable). A decrease in this ratio would indicate that the company has fewer of these liquid assets compared to its current liabilities, which would imply a weaker liquidity position. Therefore, the statement is false.

A Decrease in the Acid-Test Ratio from One Year to the Next