Why might a firm use the quick ratio instead of the current ratio in its liquidity analysis?
A)It wants to target long-term debt instead of short term debt.
B)Its accounts receivable are greater than its cash.
C)Its inventory is not very liquid.
D)It considers the cash flow amount in the quick ratio more important than the other liquidity ratios.
E)Its notes receivable are greater than its cash.

Question

Quizplus · Accepted Answer

The quick ratio, also known as the acid-test ratio, includes only the most liquid assets of a firm: cash, marketable securities, and accounts receivable. By excluding inventory, which may not be easily convertible to cash, the quick ratio provides a more conservative measure of a firm's ability to meet its short-term obligations. Therefore, a firm might use the quick ratio instead of the current ratio if its inventory is not very liquid.

Why Might a Firm Use the Quick Ratio Instead of the Current