Which of the following statements is true?
A) The smaller the current ratio the more liquid the firm.
B) Since inventory is not as liquid as the other current assets it is excluded in calculation of the quick ratio.
C) A current ratio of greater than one indicates net working capital is negative.
D) In firms with inventory the quick ratio will always exceed the current ratio.
E) A current ratio can be less than zero.

Question

Quizplus · Accepted Answer

The quick ratio excludes inventory from current assets because inventory is not as liquid as other current assets like cash or receivables, providing a more stringent measure of a firm's short-term liquidity.

Which of the Following Statements Is True