Why Is the Quick Ratio Considered by Some to Be

question 38

Multiple Choice

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 omits 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.

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Definitions:

Implicit Call Option

A provision in a financial contract that gives the issuer the right, but not the obligation, to take a specified action under certain conditions, often found in bonds.

Include

To contain, encompass, or have something as part of a whole or group.

American Call Option

A financial contract that gives the buyer the right, but not the obligation, to buy a specified quantity of an asset at a predetermined price within a specified time period until expiration.

Underlying Asset

An asset or security on which a derivative instrument, such as a futures or options contract, is based.