If quick assets are low relative to current liabilities, which ratio best reflects immediate liquidity?

• A. Current ratio
• B. Acid test ratio
• C. Inventory turnover ratio
• D. Average collection period

Answer: (B)

Immediate liquidity focuses on whether you can meet short-term obligations using assets that can be quickly turned into cash. The acid-test ratio does exactly that by comparing cash, marketable securities, and accounts receivable to current liabilities, excluding inventory. If quick assets are low relative to current liabilities, this ratio will be low, signaling weak ability to cover obligations right away. In contrast, the current ratio includes inventory, which can overstate liquidity because not all inventory can be sold immediately. Inventory turnover and average collection period relate to efficiency and collection speed, not the immediate cash readiness to settle current debts. So the acid-test ratio best reflects immediate liquidity.