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In computing the Quick Ratio for liquidity assessment, the lesson explicitly excludes one category of current assets. Which category is excluded?
Answer & Solution
Correct answer: A.
1. The Quick Ratio is a finer measure of liquidity than the Current Ratio.
2. The lesson states that inventory is excluded while calculating Quick Ratio.
3. Inventory cannot always be turned into cash quickly at the estimated value.
4. Cash, marketable securities and trade receivables are retained in the numerator.
_Source: ICSI CS Executive Paper 8 (Financial and Strategic Management) — Lesson 1: Nature, Significance and Scope of Financial Management, pp. 6-20._
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