The correct answer is Option (3) → Quick Ratio/Acid Test Ratio
The liquid ratio compares quick (liquid) assets with current liabilities. It is also called the quick ratio and the acid-test ratio, because it tests whether the business can pay its current liabilities without selling its inventory.
NCERT (2026-27 edition):
Quick or Liquid Ratio – “… The quick assets are defined as those assets which are quickly convertible into cash. While calculating quick assets we exclude the inventories at the end and other current assets such as prepaid expenses, advance tax, etc., from the current assets. Because of exclusion of non-liquid current assets it is considered better than current ratio as a measure of liquidity position of the business. It is calculated to serve as a supplementary check on liquidity position of the business and is therefore, also known as ‘Acid-Test Ratio’.” |
