Which measure assesses the company's ability to meet sudden cash requirements?

• A. Quick ratio
• B. Current ratio
• C. Debt ratio
• D. Asset turnover

Answer: (A)

Liquidity and the ability to meet sudden cash obligations are evaluated by the quick ratio. This measure uses only assets that can be quickly converted to cash—cash, marketable securities, and accounts receivable—to compare against current liabilities. Inventory is excluded because it isn’t reliably liquid in a pinch, so it can’t assure immediate payment of obligations. The result gives a stricter view of short-term liquidity than the current ratio, which includes all current assets and can overstate how ready the company is to cover debts without tapping inventory. So, if the quick ratio is around 1 or higher, the company has enough near-term liquid assets to meet current obligations without selling inventory. By contrast, debt ratio looks at leverage (liabilities relative to assets) and asset turnover measures efficiency in using assets to generate sales, not immediate cash readiness.