Which item is excluded from the quick ratio calculation?

• A. Inventory
• B. Cash, securities, and receivables
• C. Current liabilities
• D. Accounts payable

Answer: (A)

The quick ratio measures short-term liquidity by focusing on the most liquid assets and comparing them to current obligations. It uses only cash and equivalents, marketable securities, and accounts receivable in the numerator, while the denominator is current liabilities such as accounts payable. Inventory is not included in the numerator because it is not as readily convertible to cash.

Including inventory would inflate the ratio and give a less strict view of liquidity, since turning inventory into cash can take longer or be less certain. For example, with cash, receivables, marketable securities, and inventory included, the ratio would look more favorable than it truly is. Therefore, the item excluded from the quick ratio calculation is inventory.