Acid Test = _____
A) Net Income/Total Assets
B) Net Income/Owner's Equity
C) Sales - Expenses
D) Total Debts/Total Assets
E) Current Assets - Inventories/Current Liabilities

Question

Quizplus · Accepted Answer

The Acid Test, also known as the Quick Ratio, measures a company's ability to pay off its current liabilities using only quickly convertible assets (such as cash and marketable securities) and excludes inventories that may have a lower liquidity. Therefore, the formula for the Acid Test is (Current Assets - Inventories)/Current Liabilities, which corresponds to choice E.