Question

which of the following is a symbolical representation of
the quick ratio?

(cash + accounts receivable) / current liabilities

(cash + inventory) / accounts receivable

(cash + current liabilities) / inventory

Explanation:

Step1: Recall Quick Ratio Formula

The quick ratio (acid - test ratio) is calculated as (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities. Among the given options, the first option \((\text{Cash}+\text{Accounts Receivable})/\text{Current Liabilities}\) is the closest representation (assuming marketable securities are not considered in the simplified options here) as it uses the liquid assets (cash and accounts receivable) divided by current liabilities. The other options have incorrect numerators and denominators. For example, the second option has inventory (which is not a quick asset) and a wrong denominator, and the third option has a wrong combination of cash, current liabilities, and inventory.

Step2: Evaluate Each Option

• Option 1: \((\text{Cash}+\text{Accounts Receivable})/\text{Current Liabilities}\) – Cash and accounts receivable are quick assets (assets that can be converted to cash quickly), and dividing by current liabilities gives the quick ratio.
• Option 2: \((\text{Cash}+\text{Inventory})/\text{Accounts Receivable}\) – Inventory is not a quick asset, and the denominator is wrong.
• Option 3: \((\text{Cash}+\text{Current Liabilities})/\text{Inventory}\) – The combination of cash and current liabilities in the numerator and inventory in the denominator is incorrect for the quick ratio.

Answer:

\((\text{Cash}+\text{Accounts Receivable})/\text{Current Liabilities}\) (the first option among the given choices)