Firms A and B have the same current ratio,0.75; the same amount of sales,and the same amount of current liabilities.However,Firm A has a higher inventory than B.Therefore,we can conclude that A's quick ratio must be smaller than B's.

Question

Quizplus · Accepted Answer

The quick ratio only takes into account liquid assets, which are those that can be easily converted into cash. Since the current ratio includes inventory, which is not a highly liquid asset, Firm A's current ratio is inflated compared to its quick ratio. Therefore, it is possible that Firm B has a lower quick ratio than Firm A even though Firm A has a higher inventory.

Firms a and B Have the Same Current Ratio,0