The acid-test ratio:
A) Measures return on assets.
B) Is also called the quick ratio.
C) Is generally greater than the current ratio.
D) Measures profitability.
E) Measures inventory turnover.

Question

Quizplus · Accepted Answer

The acid-test ratio is also known as the quick ratio, which measures a company's ability to meet short-term obligations with its most liquid assets. Option A is incorrect because return on assets is a profitability ratio. Option C is incorrect because the acid-test ratio is generally less than the current ratio because inventory is excluded from the calculation. Option D is incorrect because profitability is measured by profitability ratios such as return on equity or return on assets. Option E is incorrect because inventory turnover measures how frequently a company sells and replaces its inventory.

The Acid-Test Ratio