A company's quick ratio:
A) can never be larger than its current ratio at the same date.
B) indicates the length of time the company takes to pay its short-term creditors.
C) indicates how quickly the company converts its current assets to cash.
D) is computed by dividing current assets by current liabilities, excluding accounts payable for inventory purchases.

Question

Quizplus · Accepted Answer

The quick ratio excludes inventory from current assets because inventory is not as easily converted to cash compared to other current assets. Since inventory is included in the current ratio, the quick ratio will always be equal to or less than the current ratio, not larger.

A Company's Quick Ratio