If you were asked to lend money to your cousin’s clothing store to help her through a slow sales period, would you be more interested in looking at the current ratio, or the quick ratio, as a measure of liquidity? Why?
Thank you for the opportunity to help you with your question!
Liquidity is measured in either current ratio or quick ratio. It is better to look into quick ratio because it does not include inventory and other assets of current that are not easy to liquidate, for example cash. By quick ratio we can measure the store's ability to meet its short term liabilities with its short term assets.
We are excluding inventory and less liquid assets in case of quick ratio, hence it's a more apt measure of liquidity.
Please let me know if you need any clarification. I'm always happy to answer your questions.
Dec 13th, 2015
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