A quick ratio much smaller than the current ratio reflects:
A) a small portion of current assets is in inventory.
B) a large portion of current assets is in inventory.
C) that the firm will have a high inventory turnover.
D) that the firm will have a high return on assets.

Question

Quizplus · Accepted Answer

The quick ratio only takes into account current assets that can quickly be converted to cash, such as cash, marketable securities and accounts receivable. By having a quick ratio much smaller than the current ratio, it means a large portion of the current assets is tied up in inventory which cannot be quickly converted to cash, indicating potential problems with liquidity.

A Quick Ratio Much Smaller Than the Current Ratio Reflects