Certified Fraud Examiner Practice Exam 2025 – All-in-One Guide to Master Your Certification!

The Quick Ratio, also known as the Acid Test Ratio, is a financial metric that evaluates a company's ability to meet its short-term liabilities using its most liquid assets. Specifically, it assesses the capacity to convert assets into cash rapidly without relying on the sale of inventory, which may not be as readily convertible to cash in the event of a financial crunch.

This ratio is calculated by taking the difference between current assets and inventory, then dividing by current liabilities. A higher Quick Ratio indicates a stronger liquidity position, suggesting that the company can more readily cover its short-term financial obligations. Thus, it directly measures the company's immediate financial health through its liquid assets against its liabilities, making “ability to quickly liquidate assets against liabilities” the most appropriate description of the Quick Ratio's purpose.

Other options focus on different aspects of financial health, such as overall profitability, long-term solvency, and debt coverage, which do not specifically capture the immediate liquidity assessment that the Quick Ratio is designed to provide. This delineation clarifies why assessing quick liquid asset availability is central to understanding a company's short-term financial stability.