Why do banks look at the quick ratio in addition to the current ratio?
A)The quick ratio assets are larger than the current ratio assets.
B)The quick ratio is a better measure of how quickly liabilities are coming due.
C)The quick ratio is easier to calculate.
D)The quick ratio uses only the most liquid assets while the current ratio uses all current assets.

Question

Quizplus · Accepted Answer

The quick ratio only takes into account the most liquid assets, such as cash and marketable securities, which can be quickly converted to cash to meet short-term obligations. This is why banks look at the quick ratio in addition to the current ratio, which includes all current assets. Banks want to ensure that a company has enough liquid assets to meet its short-term obligations in case of any financial distress.

Why Do Banks Look at the Quick Ratio in Addition