Which formula represents the Quick Ratio?

Which formula represents the Quick Ratio?

• A. (Current Assets)/(Current Liabilities)
• B. (Cash + Marketable Securities + Receivables)/Current Liabilities
• C. (Cash + Receivables)/Current Liabilities
• D. (Cash + Inventory)/Current Liabilities

Answer: (D)

The main idea being tested is liquidity using near-cash assets. The quick ratio measures how well a company can cover its current liabilities with assets that can be quickly converted to cash, without counting inventory. Because inventory may not be sold promptly or at expected value, it isn’t included in this measure. The standard quick ratio uses cash, marketable securities, and receivables in the numerator and current liabilities in the denominator. This gives a conservative view of short-term financial strength. So, the expression that matches this concept is: (Cash + Marketable Securities + Receivables) / Current Liabilities. Including inventory would overstate liquidity, and using all current assets (including inventory) aligns with the broader current ratio, not the quick ratio. A formulation with only cash and receivables omits marketable securities, which are typically considered near-cash and should be included.

The main idea being tested is liquidity using near-cash assets. The quick ratio measures how well a company can cover its current liabilities with assets that can be quickly converted to cash, without counting inventory. Because inventory may not be sold promptly or at expected value, it isn’t included in this measure. The standard quick ratio uses cash, marketable securities, and receivables in the numerator and current liabilities in the denominator. This gives a conservative view of short-term financial strength.

So, the expression that matches this concept is: (Cash + Marketable Securities + Receivables) / Current Liabilities. Including inventory would overstate liquidity, and using all current assets (including inventory) aligns with the broader current ratio, not the quick ratio. A formulation with only cash and receivables omits marketable securities, which are typically considered near-cash and should be included.