Which ratio is a quick measure of a borrower's ability to meet short-term obligations without selling inventory?

• A. Current ratio
• B. Debt ratio
• C. Cash ratio
• D. Quick ratio

Answer: (D)

The key idea is measuring liquidity using assets that can be turned into cash quickly. The quick ratio focuses on these fast-to-convert assets—cash, marketable securities, and accounts receivable—while excluding inventory. Since inventory may not be sold promptly or at expected prices, leaving it out provides a stricter test of whether current liabilities can be covered without selling inventory. The quick ratio is therefore the best measure for this question. The cash ratio is even more conservative (only cash and cash equivalents), and the debt ratio relates to leverage rather than short-term liquidity, so they don’t fit as well. For example, if quick assets total 150,000 and current liabilities are 120,000, the quick ratio is 1.25, indicating the borrower can cover obligations without relying on inventory.