The quick ratio is used to determine the efficiency with which a company uses its assets.

• A. False
• B. True
• C. It measures profitability
• D. It measures cash flows

Answer: (A)

The quick ratio measures liquidity, not efficiency. It looks at how well a company can cover its short-term obligations using its most liquid assets (cash, marketable securities, and accounts receivable) relative to current liabilities. Because it focuses on immediate ability to pay debts, it reflects short-term financial health rather than how efficiently assets are used to generate sales.

In contrast, efficiency is shown by metrics like asset turnover (sales divided by assets) which indicate how effectively assets are employed to produce revenue. Profitability metrics show how much profit is earned, and cash flow measures track actual cash movements over time. So the statement is false—the quick ratio is not a measure of asset efficiency.