Concept:The acid test ratio is a measure of a firm’s short-term liquidity.Explanation:The acid test ratio checks if a firm can pay its current liabilities using only its most liquid assets, such as cash and receivables.It excludes inventory because inventory may not be quickly converted into cash.Thus, it gives a stricter test of a firm’s ability to meet immediate obligations.So, the acid test ratio measures the liquidity of a firm.Answer:C. liquidity of a firm