The quick ratio differs from the current ratio in that it
A)represents the amount of cash on hand instead of the total current assets.
B)excludes inventories and accounts receivable from the numerator of the fraction because of obsolescence and possible collection problems.
C)is a stricter measure of a company's ability to pay its current obligations.
D)signals the need to liquidate short-term investments when it drops below 2.0.

Question

Quizplus · Accepted Answer

The quick ratio is a more conservative measure of a company's ability to pay its current obligations because it excludes inventory and accounts receivable, which may not be easily convertible to cash. Therefore, the quick ratio is a stricter measure compared to the current ratio. The other options are incorrect as they do not accurately describe the quick ratio.

The Quick Ratio Differs from the Current Ratio in That