Why is the quick ratio a more refined measure of liquidity than the current ratio?
A) It measures how quickly cash and other liquid assets flow through the company.
B) Inventories are omitted from the numerator of the ratio because they are generally the least liquid of the firm's current assets.
C) It is a quicker calculation to make.
D) Cash is the most liquid current asset.

Question

Quizplus · Accepted Answer

The quick ratio, also known as the acid-test ratio, is a more refined measure of liquidity than the current ratio because it omits inventories from the numerator of the ratio. Inventories are generally the least liquid of a firm's current assets, meaning they are the most difficult to convert to cash quickly. By excluding inventories, the quick ratio provides a more conservative measure of a company's ability to meet its short-term liabilities with its most liquid assets.

Why Is the Quick Ratio a More Refined Measure of Liquidity