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 is identical to the current ratio
• D. It includes inventory

Answer: (A)

The quick ratio measures liquidity using assets that can be quickly converted to cash, which is why it’s called the acid-test ratio. Inventory is excluded, so the ratio focuses on cash, marketable securities, and accounts receivable (and sometimes short-term investments) relative to current liabilities. Because of that exclusion, this is not identical to the current ratio, which includes inventory. So the statement is true: the quick ratio is the acid-test ratio, and it does not include inventory.

The quick ratio measures liquidity using assets that can be quickly converted to cash, which is why it’s called the acid-test ratio. Inventory is excluded, so the ratio focuses on cash, marketable securities, and accounts receivable (and sometimes short-term investments) relative to current liabilities. Because of that exclusion, this is not identical to the current ratio, which includes inventory. So the statement is true: the quick ratio is the acid-test ratio, and it does not include inventory.