How Do You Determine the Acid-Test Ratio

question 48

Multiple Choice

How do you determine the acid-test ratio?

• A) The sum of cash and short-term investments divided by short-term debt.
• B) Current assets divided by current liabilities.
• C) Current assets divided by short-term debt.
• D) The sum of cash, short-term investments and net receivables divided by current liabilities.

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Definitions:

Variable Expenses

Expenditures that fluctuate in tandem with operational activity levels, including costs like utilities and commissions.

Net Income

The total profit of a company after all expenses, including taxes and operating expenses, are subtracted from total revenue.

Break-Even Point

The point at which the amount produced or sold results in total income matching total costs, leading to neither a profit nor a loss.

Net Loss

The amount by which expenses exceed revenues over a specific period, indicating a negative financial performance.