An important measure of a firm's ability to pay its current liabilities quickly is the _____.
A) return on sales ratio
B) acid-test ratio
C) calculation of cost of goods sold
D) earnings per share
E) debt-to-equity ratio

Question

Quizplus · Accepted Answer

The acid-test ratio (also known as the quick ratio) measures a firm's ability to pay its current liabilities quickly using only its most liquid assets, such as cash, marketable securities, and accounts receivable. A higher acid-test ratio indicates that a firm is more able to meet its short-term obligations, making it a critical measure of liquidity. Return on sales ratio (A) measures how efficiently a company is generating profit from its sales, while calculation of cost of goods sold (C) is a measure of a company's expenses related to producing and selling its products. Earnings per share (D) shows how much profit a company has generated per share of its stock, while the debt-to-equity ratio (E) measures a company's financial leverage and indicates the extent to which a company is reliant on debt financing. While these measures may be important for evaluating a company's financial health, they are not directly related to a firm's ability to pay its current liabilities quickly.

An Important Measure of a Firm's Ability to Pay Its