Final answer:
The Acid-test ratio is a financial metric used to measure a company's ability to pay its current liabilities with its most liquid assets. The correct formula for this ratio is Cash + Current Investments + Accounts Receivable/ Current Liabilities, which gives a clear picture of the firm's short-term liquidity without including slower-moving assets like inventory.
Step-by-step explanation:
The Acid-test ratio, often known as the quick ratio, measures a company's ability to cover its current liabilities with its most liquid current assets. The formula for the Acid-test ratio is Cash + Current Investments + Accounts Receivable/ Current Liabilities.
This calculation excludes inventory and other current assets that are more difficult to turn into cash quickly. It's a more stringent measure than the current ratio because it focuses only on the most liquid assets.
Using the T-account information provided, which illustrates the assets on the left and the liabilities plus net worth on the right, we can see how a bank or any firm organizes its financial statement.
In our example scenario, if we needed to calculate this bank's Acid-test ratio, we'd sum up the reserves, bonds, and loans as the most liquid assets, and compare them to the total liabilities to assess the bank's financial health. However, provided numbers seem to be incomplete or incorrect for performing such a calculation.
An understanding of the Acid-test ratio is important for gauging a firm's short-term liquidity. This financial metric can provide significant insights into a company's operational efficiency and financial stability.