The purchase of additional inventory by a firm should decrease a firm's quick ratio.

Question

Quizplus · Accepted Answer

The quick ratio is a measure of a company's ability to meet its short-term obligations with highly liquid assets such as cash, marketable securities, and accounts receivable. When a firm purchases additional inventory, it increases its current assets, such as inventory, but does not increase its highly liquid assets. This would cause the denominator of the quick ratio to increase, leading to a decrease in the overall ratio. Therefore, the purchase of additional inventory should decrease a firm's quick ratio.

The Purchase of Additional Inventory by a Firm Should Decrease