Why Is the Quick Ratio a More Refined Measure of Liquidity

question 6

Multiple Choice

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.

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Definitions:

Sole Proprietorships

A business owned and operated by a single individual, where there is no legal distinction between the owner and the business entity.