Which of the following best describes measures of immediate liquidity? The current ratio and the quick ratio will always have different results regardless of the industry in which the company operates. The quick ratio excludes inventory in the denominator because most businesses cannot readily convert inventory to cash. The current ratio reflects existing cash as well as amounts to be converted to cash in the normal operating cycle. The quick ratio reflects existing cash as well as amounts to be converted to cash in the normal operating cycle.

Question

Guillermo Brandt

Business

10 October, 10:35

Which of the following best describes measures of immediate liquidity? The current ratio and the quick ratio will always have different results regardless of the industry in which the company operates. The quick ratio excludes inventory in the denominator because most businesses cannot readily convert inventory to cash. The current ratio reflects existing cash as well as amounts to be converted to cash in the normal operating cycle. The quick ratio reflects existing cash as well as amounts to be converted to cash in the normal operating cycle.

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Answers (1)

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Josue · Answer 1

The current ratio reflects existing cash as well as amounts to be converted to cash in the normal operating cycle.

Explanation:

As we know that

There are two liquidity ratios which is current ratio and quick ratio

The formula to compute each one is shown below:

Current ratio = Current assets : Current liabilities

And, the quick ratio = Quick assets : current liabilities

where,

Quick ratio = Current assets - inventory - prepaid expenses

By considering the two above ratios we could find the liquidity position of the ratio but the current ratio is the best as it includes all the items i, e to be required for it