Which of the following ratios would be the most useful to assess the risk associated with a firm being able to pay off its short-term line of credit?
A) Return on equity
B) The acid test ratio
C) The operating profit margin
D) The fixed asset turnover

Question

Quizplus · Accepted Answer

The acid test ratio measures a company's ability to pay off its short-term liabilities using only its most liquid assets, such as cash and accounts receivable. This makes it a more useful ratio for assessing a company's ability to pay off short-term debt, compared to ratios such as return on equity, operating profit margin, and fixed asset turnover, which focus on other aspects of a company's financial performance.

Which of the Following Ratios Would Be the Most Useful