The quick ratio is commonly referred to as the acid-test ratio.

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Multiple Choice

The quick ratio is commonly referred to as the acid-test ratio.

Explanation:
The quick ratio measures liquidity using assets that can be quickly converted to cash, which is why it’s called the acid-test ratio. Inventory is excluded, so the ratio focuses on cash, marketable securities, and accounts receivable (and sometimes short-term investments) relative to current liabilities. Because of that exclusion, this is not identical to the current ratio, which includes inventory. So the statement is true: the quick ratio is the acid-test ratio, and it does not include inventory.

The quick ratio measures liquidity using assets that can be quickly converted to cash, which is why it’s called the acid-test ratio. Inventory is excluded, so the ratio focuses on cash, marketable securities, and accounts receivable (and sometimes short-term investments) relative to current liabilities. Because of that exclusion, this is not identical to the current ratio, which includes inventory. So the statement is true: the quick ratio is the acid-test ratio, and it does not include inventory.

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