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 assets are more liquid than the current ratio assets.

Question

Quizplus · Accepted Answer

Banks look at the quick ratio in addition to the current ratio because the quick ratio provides a better measure of a company's ability to cover its short-term liabilities with its most liquid assets. While the current ratio includes all current assets, some of those assets may not be easily convertible to cash, whereas the quick ratio only includes assets that are highly liquid. Therefore, the quick ratio gives a clearer picture of a company's ability to meet its short-term obligations.

Why Do Banks Look at the Quick Ratio in Addition