Final answer:
The quick ratio differs from the current ratio as it includes only liquid assets that can be quickly converted to cash, thereby providing a more stringent measure of a company's short-term liquidity.
Step-by-step explanation:
Both the quick ratio and the current ratio are financial metrics used to gauge a company's liquidity and ability to meet its short-term obligations. The quick ratio differs from the current ratio by focusing specifically on those assets that can be quickly converted to cash, excluding less liquid current assets like inventory. Its calculation uses liquid assets, which typically include cash, marketable securities, and receivables, divided by current liabilities.
The rationale behind this difference is based on liquidity. Assets that can be converted into cash quickly are more valuable in the short term for covering liabilities. This is particularly important in understanding an asset-liability time mismatch, where a firm's liabilities may be due in the short term, whereas it takes longer to convert its assets into cash.
The current ratio, on the other hand, includes all current assets in its calculation, without discriminating between assets based on liquidity. As a tool on the balance sheet, it gives a broader view of the company's ability to meet its short-term debts with its short-term assets.