To determine the correct formula for calculating a company's acid-test ratio, let's break down each option and find the appropriate one:
1. Merchandise inventory divided by Total assets:
- This formula does not relate to the acid-test ratio. It calculates the proportion of inventory relative to the total assets.
2. Current assets divided by Total assets:
- This formula gives the proportion of current assets relative to the total assets, which is not the acid-test ratio.
3. (Cash plus Short-term investments plus Current receivables plus Inventory) divided by Current liabilities:
- This formula includes inventory in the calculation, which is a deviation from the acid-test ratio. Including inventory reflects the current ratio, not the acid-test ratio.
4. (Cash and cash equivalents plus Short-term investments plus Current receivables) divided by Current liabilities:
- This is the correct formula for the acid-test ratio. It excludes inventory, focusing on the most liquid assets that can quickly cover current liabilities.
The acid-test ratio measures a company's ability to meet its short-term obligations with its most liquid assets. Therefore, the correct formula for the acid-test ratio is:
(Cash and cash equivalents plus Short-term investments plus Current receivables) divided by Current liabilities
Given this, the correct option is:
- (Cash and cash equivalents plus Short-term investments plus Current receivables) divided by Current liabilities
