What is defined as the current assets minus inventories and prepaid expenses? A. Profit margin ratio B. Price-earnings ratio C. Return of investment ratio D. Quick ratio

The correct answer is D. Quick ratio.

The quick ratio is a liquidity ratio that measures a company’s ability to pay off its short-term obligations with its most liquid assets. It is calculated by dividing a company’s current assets minus inventories and prepaid

expenses by its current liabilities.

A higher quick ratio indicates that a company has more liquid assets to cover its short-term obligations. This is generally considered to be a good sign, as

it means that the company is less likely to have difficulty meeting its financial obligations.

However, it is important to note that the quick ratio does not take into account a company’s long-term obligations. As such, it is not a complete measure of a company’s financial health.

The other options are incorrect for the following reasons:

• Profit margin ratio is a measure of a company’s profitability. It is calculated by dividing a company’s net income by its net sales.
• Price-earnings ratio is a measure of a company’s valuation. It is calculated by dividing a company’s stock price by its earnings per share.
• Return on investment ratio is a measure of a company’s profitability. It is calculated by dividing a company’s net income by its total assets.