One test of a company's liquidity is the

A) debt ratio
B) acid-test ratio
C) return on stockholders' equity
D) price-earnings ratio

The acid-test ratio, also known as the quick ratio, measures a company's ability to pay its short-term liabilities with its most liquid assets. It excludes inventory from the calculation because it is not always easily convertible into cash. A higher acid-test ratio indicates a company has a more liquid position, which is desirable for meeting short-term obligations.