Which term describes a liquidity ratio that measures the ability to meet current obligations on short notice?

• A. Quick asset ratio
• B. Current ratio
• C. Debt-to-equity ratio
• D. Working capital ratio

Answer: (A)

The quick ratio, also known as the acid-test ratio, measures liquidity available to meet current obligations on short notice by using only highly liquid assets—cash, marketable securities, and accounts receivable—divided by current liabilities. Inventory is excluded because it isn’t readily converted to cash, so this ratio provides a strict view of immediate solvency. The current ratio includes all current assets, including inventory, which can overstate how quickly assets can be turned into cash. The debt-to-equity ratio focuses on financing structure rather than liquidity, and the working capital ratio is a less precise or less standard term for comparing current assets to current liabilities.