Which of the Following Describes the Key Significance of the Acid

question 54

Multiple Choice

Which of the following describes the key significance of the acid ratio?

• A) It measures a company's ability to pay its current liabilities by using its current assets.
• B) It measures the profitability of a company.
• C) It reflects how much long-term debt a company has.
• D) It indicates how much cash could be realized by selling off all the inventory.

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Definitions:

Profitability

An indicator of how well a company is able to produce profit through its business activities.

Liquidity

A measure of how easily assets can be converted into cash or cash equivalents without significantly altering their value, essential for meeting short-term obligations.

Asset Management

A methodical approach to the creation, operation, upkeep, and disposition of assets that ensures cost efficiency.

Debt Financing

Raising capital through borrowing money that must be repaid over time, with interest, from lenders or financial institutions.