Why is the quick ratio considered by some to be a better measure of liquidity than the current ratio?
A) The quick ratio more accurately reflects a firm's profitability.
B) It omits the least liquid current asset from the numerator of the ratio.
C) The current ratio does not include accounts receivable.
D) It measures how "quickly" cash flows through the firm.

Question

Quizplus · Accepted Answer

The quick ratio is considered a better measure of liquidity than the current ratio because it excludes the least liquid current asset, which is inventory. This is important because inventory can take longer to convert to cash than other current assets. Therefore, the quick ratio provides a more conservative measure of a company's ability to meet its short-term obligations.

Why Is the Quick Ratio Considered by Some to Be