The quick ratio is commonly referred to as the acid-test ratio.

The quick ratio is commonly referred to as the acid-test ratio.

• A. True
• B. False
• C. It measures profitability
• D. It includes inventory

Answer: (A)

The quick ratio and the acid-test ratio are the same measure of short-term liquidity. It focuses on a company’s ability to cover current liabilities with the most liquid assets, using cash, marketable securities, and accounts receivable, while excluding inventory because it may not be quickly converted to cash. Because of this, the quick ratio is commonly referred to as the acid-test ratio, so the statement is true. It does not measure profitability, and it does not include inventory in its calculation, which is why the other options don't fit.

The quick ratio and the acid-test ratio are the same measure of short-term liquidity. It focuses on a company’s ability to cover current liabilities with the most liquid assets, using cash, marketable securities, and accounts receivable, while excluding inventory because it may not be quickly converted to cash. Because of this, the quick ratio is commonly referred to as the acid-test ratio, so the statement is true. It does not measure profitability, and it does not include inventory in its calculation, which is why the other options don't fit.