CIPS L4m4 Ethical And Responsible Sourcing · Free Practice Question Easy
Question 2
In order to assess whether a company is able to meet its current liabilities, which financial ratio should you use?
- A Return on Equity
- B Acid Test
- C Gearing Ratio
- D Gross Profit Margin
Reveal correct answer
Correct answer: B
Explanation
"Meet current liabilities" is a posh way of saying "can you pay your bills". You're therefore looking for a liquidity ratio- a ratio that looks at assets vs liabilities (i.e. money in the bank vs money owed out). The Acid Test is a liquidity ratio. It's sometimes called the 'quick ratio'. Both terms come up on the exam. The other options are financial ratios but aren't for liquidity.
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