ECONOMICS

Detailed explanation-1: -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).

Detailed explanation-2: -The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets, which are generally more difficult to turn into cash.

Detailed explanation-3: -Here inventory is considered as less secure than other current assets and prepaid expenses as the name suggests are paid in advance for a reason, bank overdraft and cash credit are usually secured against inventory and so all these 4 items are excluded while calculating quick ratio. Was this answer helpful?

Detailed explanation-4: -Quick ratio, on the other hand, is known as the acid test ratio, and does not include any inventory or prepaid expenses. It considers only those items that can be easily converted into cash or we can say items that are highly liquid in monetary terms.