What is the quick ratio formula?

What is the quick ratio formula?

• A. (Current assets - inventories) / current liabilities
• B. Current assets / current liabilities
• C. (Current assets - accounts payable) / current liabilities
• D. (Current assets + inventories) / current liabilities

Answer: (B)

The quick ratio, also known as the acid-test ratio, measures immediate liquidity by using only the most liquid current assets. It excludes inventory because inventory may not be quickly converted to cash at its stated value. The formula is: (current assets minus inventories) divided by current liabilities. An equivalent way to view it is (cash plus marketable securities plus accounts receivable) divided by current liabilities. The option that uses all current assets over current liabilities corresponds to the current ratio, which includes inventory and is a less stringent measure of liquidity.

The quick ratio, also known as the acid-test ratio, measures immediate liquidity by using only the most liquid current assets. It excludes inventory because inventory may not be quickly converted to cash at its stated value. The formula is: (current assets minus inventories) divided by current liabilities. An equivalent way to view it is (cash plus marketable securities plus accounts receivable) divided by current liabilities. The option that uses all current assets over current liabilities corresponds to the current ratio, which includes inventory and is a less stringent measure of liquidity.