Question

What is the difference between current ratio and quick ratio?

Answer 1

Current ratio = Total current assets/total current liabilities Whereas Quick ratio =(total current assets- inventory -prepaid expense)/total current liabilities The quick ratio offers a more conservative view of a company’s liquidity or ability to meet its short-term liabilities with its short-term assets because it doesn't include inventory and other current assets that are more difficult to liquidate (i.e., turn into cash). By excluding inventory, and other less liquid assets, the quick ratio focuses on the company’s more liquid assets.