Asked by Maryam Jaber on Jun 23, 2024
Verified
The acid-test ratio is normally smaller than the current ratio for a firm.
Acid-Test Ratio
A stringent indicator of whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory.
Current Ratio
A financial metric assessing a firm's capacity to settle short-term debts using its existing assets.
- Familiarize oneself with the concept of liquidity and the process of its calculation through ratios.
Verified Answer
CS
Catherine SidesJun 29, 2024
Final Answer :
True
Explanation :
The acid-test ratio is a more stringent test of a firm's ability to meet its short-term financial obligations than the current ratio, as it only includes the most liquid assets. Therefore, the acid-test ratio is normally smaller than the current ratio for a firm.
Learning Objectives
- Familiarize oneself with the concept of liquidity and the process of its calculation through ratios.