Final answer:
The quick ratio is a more rigorous test of short-run solvency than the current ratio because it focuses on the most liquid and readily available assets. it excludes less liquid assets such as inventory and prepaid expenses.
Step-by-step explanation:
The quick ratio is a more rigorous test of short-run solvency than the current ratio because it provides a more conservative measure of a company's ability to meet its short-term obligations. The quick ratio only considers cash and marketable securities as current assets, excluding less liquid assets such as inventory and prepaid expenses. By eliminating these less liquid assets, the quick ratio focuses on the most readily available sources of funds that can be used to pay off short-term liabilities.
For example, if a company has a quick ratio of 1, it means that for every dollar of current liabilities, it has a dollar of quick assets available to cover those liabilities. This indicates a stronger ability to meet short-term obligations compared to the current ratio, which includes less liquid assets in its calculation. in summary, the quick ratio provides a more rigorous test of short-run solvency because it focuses on the most liquid and readily available assets, providing a conservative measure of a company's ability to pay off short-term debts.