In financial analysis of construction firms, the ratio defined as (Current assets − Inventories) / Current liabilities is commonly known as which liquidity metric?

Introduction / Context:
Short-term solvency is crucial for contractors who manage payrolls, suppliers, and cash-intensive operations. Liquidity ratios measure a firm’s ability to meet near-term obligations. The Quick (Acid-Test) ratio refines the Current ratio by excluding inventories that may not be quickly realizable into cash.

Given Data / Assumptions:

• Formula given: (Current assets − Inventories) / Current liabilities.
• Objective: identify the standard name of this ratio.
• Context: construction accounting and project cash flow needs.

Concept / Approach:

The Current ratio uses Current assets / Current liabilities. The Quick ratio removes inventories, focusing on cash, marketable securities, and receivables. This better reflects immediate liquidity since inventories can be slow to convert, especially for specialty construction materials or custom-fabricated items.

Step-by-Step Solution:

Verification / Alternative check:

Finance texts uniformly label the inventory-excluded liquidity metric as the Quick ratio, contrasted with the broader Current ratio that includes inventories.

Why Other Options Are Wrong:

• Current ratio includes inventories; not the given formula.
• Liquidity ratio is a generic term, not the standard name here.
• Debts ratio relates liabilities to assets; irrelevant here.
• Inventory turnover measures sales to inventory, not liquidity.

Common Pitfalls:

• Using the Current ratio alone for cash planning when inventory is illiquid.
• Not aging receivables; Quick ratio assumes realizability.

Final Answer:

Acid-Test (or Quick) ratio