Asked by Brisa Sanchez on Jun 03, 2024
Verified
Which of the following current assets is NOT included when calculating the acid-test ratio?
A) Inventory
B) Marketable securities
C) Cash
D) Accounts receivable
Acid-Test Ratio
A financial metric used to determine a company's short-term liquidity situation by comparing its most liquid assets, excluding inventory, to its current liabilities.
Current Assets
Short-term assets that are expected to be converted into cash, sold, or consumed within one year or within the business's operating cycle, including cash, inventory, and receivables.
Inventory
The total amount of goods and materials held in stock by a business or organization.
- Understand the significance of liquidity ratios in evaluating a firm's short-term financial health.
Verified Answer
ZK
Zybrea KnightJun 03, 2024
Final Answer :
A
Explanation :
The acid-test ratio, also known as the quick ratio, measures a company's ability to meet its short-term obligations with its most liquid assets. It excludes inventory from the calculation because inventory is not as easily converted into cash compared to other current assets like marketable securities, cash, and accounts receivable.
Learning Objectives
- Understand the significance of liquidity ratios in evaluating a firm's short-term financial health.