Which ratio excludes inventory when assessing liquidity?

• A. Acid test
• B. Current ratio
• C. Return on assets
• D. Gross margin

Answer: (A)

The key idea is measuring liquidity with a conservative lens. The acid-test ratio excludes inventory because inventory isn’t as readily turned into cash as other current assets. By focusing only on the most liquid assets—cash, marketable securities, and accounts receivable—the quick ratio provides a stricter test of a company’s ability to cover current liabilities without relying on selling inventory. That makes it the best answer for assessing liquidity without counting inventory. The current ratio includes inventory, so it’s less stringent. The other options are profitability measures, not liquidity measures, so they don’t address how quickly assets can cover short-term obligations.