Certified Professional Contract Manager (CPCM) 2025 – 400 Free Practice Questions to Pass the Exam

The acid test ratio, also known as the quick ratio, specifically measures the ability of a company to meet its current liabilities using its most liquid assets, which are current assets excluding inventory. This metric is crucial for assessing a company's short-term financial health, particularly in situations where inventory may not be easily converted to cash quickly. By focusing on cash, marketable securities, and accounts receivable, the acid test ratio provides a more stringent assessment of a company's liquidity than the current ratio, which includes inventory.

This measure is significant for investors and creditors as it indicates how well a company can cover its immediate obligations without relying on the sale of inventory, which could take longer and may not be guaranteed. Thus, option B accurately reflects the purpose of the acid test ratio.

Other options refer to different financial metrics or aspects: measuring the ability to pay off long-term debt is related to leverage ratios; assessing overall profitability pertains to profitability ratios; and evaluating cash flow management efficiency typically involves analyzing cash flow statements rather than liquidity ratios.