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:

Gas Stations

Gas Stations are retail facilities that sell fuel and engine lubricants for motor vehicles, often offering additional services or goods.

Long Run

A period in which all factors of production and costs are variable, allowing for adjustment in all inputs and production levels.

Market Entry

The act or process by which a company enters a new market, facing potential barriers and strategizing to penetrate or develop it.

Market Demand

The total quantity of a product or service that all consumers in a market are willing and able to purchase at various prices.