Which one of these ratios is commonly referred to as the acid-test ratio?
A)times interest earned ratio.
B)quick ratio.
C)cash coverage ratio.
D)cash ratio.

Question

Quizplus · Accepted Answer

The quick ratio is commonly referred to as the acid-test ratio because it measures a company's ability to quickly convert its current assets into cash to pay off its current liabilities. It excludes inventory from current assets because inventory is not easily or quickly convertible into cash. The other ratios listed (times interest earned ratio, cash coverage ratio, cash ratio) do not specifically focus on a company's ability to meet its short-term obligations.

Which One of These Ratios Is Commonly Referred to as the Acid-Test