Question

The quick ratio is usually smaller than the current ratio.

True

False

Answer 1

The current ratio is calculated by dividing the current assets with current liability.

Current assets include Cash, Marketable Securities, Accounts Receivable, Inventory and other prepaid expenses.

The quick ratio is calculated by dividing the liquid assets such as Cash, Marketable Securities, and Accounts Receivable with current liability.

Since the denominator is same and nominator in quick asset does not include inventory and other non-liquid current assets, therefore quick ratio is always smaller than the current ratio.

Hence the statement is False as quick ratio is always not usually smaller than the current ratio.