Business FinancesQuestion 303 of 1632
A contractor's quick (acid-test) view of liquidity differs from the current ratio mainly because the quick ratio:
a.Excludes inventory from current assets
b.Includes long-term debt in the calculation
c.Adds depreciation back to assets
d.Uses annual revenue instead of assets
Explanation
The quick ratio measures the ability to pay short-term debts using the most liquid assets, so it excludes inventory because inventory may not convert to cash quickly. The current ratio includes all current assets.
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Reviewed by Abraham Chen — Licensed California General Contractor (CSLB License #1101856 — verify)