This ratio is the measure of how much money can be made available very quickly to pay obligations within the fiscal year.

Question

Quizplus · Accepted Answer

The ratio described in the question is the acid test ratio, also known as the quick ratio. This ratio measures a company's ability to quickly convert its most liquid assets into cash to pay off short-term obligations. The current ratio (A) measures a company's ability to pay off short-term obligations with its current assets, which includes inventory and prepaid expenses, which may take longer to convert into cash. Activity ratios (C) measure a company's efficiency in managing its resources, while leverage ratios (D) measure a company's level of debt and its ability to meet its long-term obligations.

This Ratio Is the Measure of How Much Money Can