The Acid-Test Ratio Differs from the Current Ratio in That

question 188

Multiple Choice

The acid-test ratio differs from the current ratio in that it

• A)represents the amount of cash on hand instead of the amount of working capital.
• B)excludes inventories and accounts receivable from the numerator of the fraction because of obsolescence and possible nonpayment.
• C)is a stricter test of a company's ability to pay its current debts as they are due.
• D)signals the need to liquidate marketable securities when it drops below 5 to 1.

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Definitions:

Securities Offered

Financial instruments such as stocks, bonds, or options that are made available for sale to investors.

Direct Cash

Cash transactions that involve the immediate transfer of money for goods or services, without any delay in payment.

IPO Underpricing

The phenomenon where shares of a company are sold at a lower price during the initial public offering than the price at which they subsequently trade in the open market.

Offering Price

The price at which shares of a company are initially made available for purchase during an initial public offering or other issuance.