Analysts Use the Quick Ratio (Also Known as the Acid

question 23

Multiple Choice

Analysts use the quick ratio (also known as the acid test ratio) and the current ratio.The use of both ratios has become common because

• A)the quick ratio is much easier to compute than the current ratio
• B)interpretation of the current ratio is more difficult because of its complexity
• C)the acid test is a more severe test of a company's liquidity
• D)the acid test a better measure of management's effectiveness

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Definitions:

Allowances

Financial compensations or extra quantities given to cover specific needs or requirements.

Normal Time

The estimated duration required to complete a task under normal working conditions.

Standard Time

The established amount of time it should take for a task to be completed under normal conditions.

Average Observed Time

The mean time noted for a task in a work measurement study, calculated by observing and recording the time taken to complete the task over several cycles.