A Firm's Acid-Test Ratio Can Never Be Higher Than Its

question 36

True/False

A firm's acid-test ratio can never be higher than its current ratio.

---

Definitions:

Straight-Line Depreciation

A method of allocating the cost of a tangible asset over its useful life in a linear fashion.

Asset Impairments

The reduction in the recoverable value of a fixed asset or goodwill below its book value, reflected in the financial statements as an expense.

Future Cash Flows

Estimated amounts of money expected to be received or paid out by an entity in the future as a result of financial transactions or business operations.

Net Book Value

The value at which an asset is carried on a balance sheet, calculated as the asset's original cost minus accumulated depreciation and impairments.