Question #5649

The acid-test (quick) ratio

a. is the same as the current ratio except it is rounded to the nearest whole percent.

b. is used to quickly determine a company's solvency and long-term debt paying ability.

c. relates cash, short-term investments, and net receivables to current liabilities.

d. is calculated by taking one item from the income statement and one item from the balance sheet.

a. is the same as the current ratio except it is rounded to the nearest whole percent.

b. is used to quickly determine a company's solvency and long-term debt paying ability.

c. relates cash, short-term investments, and net receivables to current liabilities.

d. is calculated by taking one item from the income statement and one item from the balance sheet.

Expert's answer

The acid-test (quick) ratio relates cash, short-term investments, and net receivables to current liabilities.

Quick Ratio (also known as the "acid-test ratio" or the "quick assets ratio") is an indicator of a company's short-term

liquidity. It measures a company's ability to meet its short-term obligations

with its most liquid assets. The higher the quick ratio, the better the position

of the company. The quick ratio is calculated as Current Assets-Inventories

divided on Current Liabilities. Speaking about Current Assets, we can admit that

include cash, accounts receivable, inventory, marketable securities, prepaid

expenses and other liquid assets that can be readily converted to cash. So in

our example cash, short-term investments, and net receivables represent the upper part of the formula of

quick ratio that is related to current liabilities.

Quick Ratio (also known as the "acid-test ratio" or the "quick assets ratio") is an indicator of a company's short-term

liquidity. It measures a company's ability to meet its short-term obligations

with its most liquid assets. The higher the quick ratio, the better the position

of the company. The quick ratio is calculated as Current Assets-Inventories

divided on Current Liabilities. Speaking about Current Assets, we can admit that

include cash, accounts receivable, inventory, marketable securities, prepaid

expenses and other liquid assets that can be readily converted to cash. So in

our example cash, short-term investments, and net receivables represent the upper part of the formula of

quick ratio that is related to current liabilities.

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