Certified Internal Auditor (CIA) Part 3: Business Knowledge for Internal Auditing — Question 199

Which of the following measures immediate liquidity?

Answer options

• A. Acid-test (quick) ratio.
• B. Current ratio.
• C. Profit margin.
• D. Times interest earned.

Correct answer: A

Explanation

The Acid-test (quick) ratio is designed to evaluate a company's ability to pay off its current liabilities without relying on the sale of inventory, making it a direct measure of immediate liquidity. The Current ratio, while related, includes inventory in its calculation, which can delay liquidity. Profit margin assesses profitability, and Times interest earned measures a company's ability to meet interest obligations, neither of which directly indicates liquidity.