Future Business Leaders of America (FBLA) Agribusiness Practice Test

Quick ratios differ from liquidity ratios by:

1. Including long-term liabilities

2. Excluding inventories due to their less liquid nature

3. Only accounting for cash assets

4. Adding non-current assets to current assets

The correct answer is: Excluding inventories due to their less liquid nature

Quick ratios are a specific type of liquidity ratio that focus on a company's ability to meet its short-term obligations with its most liquid assets. The correct answer is that quick ratios exclude inventories due to their less liquid nature. This distinction is important because inventories can take time to sell and convert into cash, and therefore may not be readily available to cover short-term liabilities. Quick ratios, sometimes referred to as acid-test ratios, consider only those current assets that can be quickly converted into cash, such as cash itself, marketable securities, and accounts receivable. By excluding inventories, the quick ratio provides a more stringent view of a company's liquidity position. In contrast to this, liquidity ratios more broadly consider all current assets, including inventories, which may not always be as readily available to meet obligations. This makes the quick ratio a more conservative measure of a business’s immediate financial health, particularly in industries where inventory turnover is slower.