00:01
This problem is asking us about ratios, specifically which ratio is called the acid test, and it's compared to a current ratio.
00:12
So the current ratio is current assets over current liabilities, and it measures short -term debt payment ability.
00:39
So short.
00:55
The acid test is also known as the quick ratio.
01:06
It's very similar to the current ratio, but it takes out one main current asset that is included in the current ratio, and that is inventory.
01:20
So specifically, the quick ratio is cash plus short -term investments.
01:40
Plus accounts receivable, all over current liabilities.
01:50
So, and what the quick ratio is doing is it's looking at more immediate, short -term liquidity.
02:09
And what liquidity is, is it is talking about how quickly can you turn your assets into cash to pay off your debts...