The quick ratio is calculated as
A)current assets divided by current liabilities.
B)current assets minus inventory,divided by current liabilities.
C)net working capital divided by current liabilities.
D)cash on hand divided by current liabilities.
E)current liabilities divided by current assets.

Question

Quizplus · Accepted Answer

The quick ratio, also known as the acid-test ratio, measures a company's ability to meet its short-term obligations with its most liquid assets. It is calculated by subtracting inventory from current assets and then dividing by current liabilities. This is why option B is the correct answer. Options A and E are incorrect because they do not take into account the immediacy of assets. Option C is incorrect because net working capital includes inventory, which is not considered a quick asset. Option D is incorrect because it only measures cash availability, not the liquidity of all current assets.

The Quick Ratio Is Calculated as