Which ratio measures a company’s ability to cover its short-term obligations using its most liquid current assets, excluding inventory?

Explanation

Core Concept: The Quick Ratio (Acid-Test Ratio) = (Current Assets – Inventory – Prepaid Expenses) / Current Liabilities. It tests immediate liquidity by removing less liquid items. Context/Distractors: Current Ratio includes total current assets including inventory. Debt to Equity measures financial leverage, and ROA measures profitability. Exam Tip/Key Fact: A Quick Ratio of 1:1 is traditionally considered a healthy benchmark for liquidity.