If a liquidity metric around 4.0 describes which ratio?

• A. Current ratio
• B. Acid test
• C. Gross margin
• D. Net profit margin

Answer: (A)

Liquidity measures show how well a company can meet short-term obligations. A value around 4.0 means current assets are about four times current liabilities, giving a big cushion to cover near-term debts. That description fits the current ratio, which is current assets divided by current liabilities. The acid-test ratio is a stricter measure that excludes inventory, and while it can be high, the common interpretation for a four-to-one figure is the broad current ratio. Gross margin and net profit margin, by contrast, relate to profitability, not liquidity.