A measure of the relationship between short-term assets and current liabilities is the

• A. Quick Ratio
• B. Current Ratio
• C. Cash Ratio
• D. Accounts Receivable Turnover

Answer: (A)

Short-term liquidity is about whether a firm can cover its current liabilities with assets that can be quickly turned into cash. The quick ratio does this by taking the most liquid current assets—cash, marketable securities, and accounts receivable—and dividing them by current liabilities. It excludes inventory because inventory may not be sold promptly at a reliable price, so including it could overstate how quickly obligations can be met. This makes the quick ratio a stricter, more immediate test of liquidity than the current ratio, which includes all current assets (including inventory). The cash ratio is even more conservative, using only cash and cash equivalents, and accounts receivable turnover is an efficiency measure of how fast receivables are collected, not a direct measure of immediate ability to cover current liabilities.