Which of the following is true about the quick ratio?

• A. It includes inventory in the numerator
• B. It uses cash, marketable securities, and receivables in the numerator
• C. It is identical to the current ratio
• D. It ignores current liabilities

Answer: (B)

The quick ratio focuses on the most liquid current assets to assess immediate ability to cover short-term obligations. It uses cash, marketable securities, and receivables in the numerator because these can be converted to cash quickly. Inventory is not included since it may not be sold promptly enough to meet near-term liabilities.

So the ratio is (cash + marketable securities + receivables) divided by current liabilities. The denominator is current liabilities, not ignored, and the quick ratio is more stringent than the current ratio because it excludes inventory. For example, if cash is 50, marketable securities 20, receivables 30, inventory 60, and current liabilities 100, the quick ratio is (50+20+30)/100 = 1.0, while the current ratio would include the inventory and be (50+20+30+60)/100 = 1.6. This shows why the described statement—using cash, marketable securities, and receivables in the numerator—is the true characteristic.