Which of the following best describes the quick ratio?

• A. CA/CL
• B. (CA - Inventory)/CL
• C. (CA - Inventory)/CA
• D. (CA - Accounts Payable)/CL

Answer: (B)

The quick ratio focuses on the most liquid assets available to cover short-term liabilities, excluding inventory because inventory isn’t always quickly convertible to cash. It is calculated as (current assets minus inventory) divided by current liabilities. This shows how well a company can meet near-term obligations with assets that can be turned into cash quickly. Among the options, the expression that matches this definition is (current assets minus inventory) over current liabilities, which is why it’s the correct choice. The other forms either use the full current assets (the current ratio), use an unconventional denominator, or subtract accounts payable, none of which capture the quick, highly liquid portion of assets.