Which of the following ratios is a measure of the firm's ability to pay its current liabilities once inventory is subtracted from current assets?
A) the acid-test ratio
B) the net margin ratio
C) the profitability ratio
D) the inventory ratio

Question

Quizplus · Accepted Answer

The acid-test ratio, also known as the quick ratio, is calculated as (Current assets - Inventory) / Current liabilities. This ratio measures the firm's ability to pay its current liabilities using only its most liquid assets (excluding inventory). Therefore, option A is the correct choice. The net margin ratio and profitability ratio are measures of profitability, while the inventory ratio measures the efficiency of inventory management.

Which of the Following Ratios Is a Measure of the Firm's