Question

Which of the following statements is true? Select one: A. The quick ratio is a more restrictive measure of a firm's liquidity than the current ratio. B. Current assets consist of cash, accounts receivable, inventory, and net plant, property, and equipment. C. For the average firm, inventory is considered to be more "liquid" than accounts receivable. D. A successful firm's current liabilities should always be greater than its current assets.

Answer 1

Answer: Option A

Step-by-step explanation: Quick ratio is the most restrictive liquidity ratio. It can be computed by dividing quick assets with the current liabilities.

Quick assets include only those assets which can be readily converted into cash, these assets do not include inventory as it may take time to sell, thus, making it most stringent of all ratio.