Why is the quick ratio considered by some to be a better measure of liquidity than the current ratio?
A) The quick ratio more accurately reflects a firm's profitability.
B) It leaves out the least liquid current asset from the numerator of the ratio.
C) The current ratio does not include accounts receivable.
D) It measures how "quickly" cash flows through the firm.

Question

Quizplus · Accepted Answer

The quick ratio, also known as the acid-test ratio, is considered a better measure of liquidity by some because it excludes the least liquid current asset, which is typically inventory, from the numerator of the ratio. This is important because inventory may take longer to sell and convert to cash than other current assets. By focusing on only the most liquid assets, the quick ratio provides a more conservative measure of a company's ability to meet its short-term obligations.

Why Is the Quick Ratio Considered by Some to Be