The correct answer is: A. 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 inventory by its current liabilities.
The quick ratio is a more stringent test of liquidity than the current ratio because it excludes inventory, which is often the least liquid of a company’s current assets. A quick ratio of 1 or greater indicates that a company has enough liquid assets to cover its short-term obligations.
The current ratio is a liquidity ratio that measures a company’s ability to pay off its short-term obligations with its current assets. It is calculated by dividing a company’s current assets by its current liabilities.
The current ratio is a less stringent test of liquidity than the quick ratio because it includes inventory, which is often the least liquid of a company’s current assets. A current ratio of 2 or greater is generally considered to be healthy.
The absolute liquid 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 cash and cash equivalents by its current liabilities.
The absolute liquid ratio is the most stringent test of liquidity because it excludes all assets that are not cash or cash equivalents. A company with an absolute liquid ratio of 1 or greater is considered to be very liquid.
In conclusion, the quick ratio is the most precise test of liquidity because it excludes inventory, which is often the least liquid of a company’s current assets.