The quick ratio, also known as the acid-test ratio, measures a company's ability to meet its short-term obligations with its most liquid assets. It is calculated by subtracting inventory and prepaid items from current assets and then dividing by current liabilities. This is because inventory and prepaid expenses are not as easily converted into cash compared to other current assets.

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The Quick Ratio Is

Question 67

Multiple Choice

The quick ratio is:

A) The liquidity ratio divided by the equity ratio.
B) Current assets minus inventory divided by current liabilities minus accounts payable.
C) Current assets minus inventory and prepaid items divided by current liabilities.
D) Cash divided by accounts payable.

Correct Answer: