Identify the other name by which Liquid ratio is known :

Quick Ratio/Acid Test Ratio

The correct answer is option (3) : Quick Ratio/Acid Test Ratio

Liquid ratio is the ratio of quick (or liquid) asset to current liabilities. It is expressed as Quick ratio = Quick Assets : Current Liabilities or Quick Assets / Current Liabilities.

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’.