The acid test ratio is a tighter measure of a company's ability to pay current liabilities than the current ratio.

Question

Quizplus · Accepted Answer

The acid test ratio (also known as quick ratio) only considers assets that can be easily converted into cash, such as cash, marketable securities, and accounts receivable, while excluding inventory and prepaid expenses. This makes it a more stringent measure of a company's ability to pay off short-term obligations than the current ratio, which includes all current assets in the calculation.

The Acid Test Ratio Is a Tighter Measure of a Company's