Which of the following is a common measure of the liquidity of a company?
A) The profit ratio
B) The quick ratio
C) The growth ratio
D) The equity ratio

Question

Quizplus · Accepted Answer

The quick ratio, also known as the acid-test ratio, is a common measure of a company's liquidity. It calculates a company's ability to meet its short-term obligations using only its most liquid assets (cash, marketable securities, and accounts receivable) and excluding inventory and prepaid expenses. A higher quick ratio indicates better liquidity and suggests that a company is better equipped to pay off short-term debts. The profit ratio (A) measures the company's profitability, the growth ratio (C) measures the growth potential of a company, and the equity ratio (D) measures the proportion of a company's assets that are financed by equity. While these ratios are important in evaluating a company's financial health, they do not directly measure liquidity.

Which of the Following Is a Common Measure of the Liquidity