Ace the AFP Exam 2026 – Boost Your Financial Wizardry!

The correct choice highlights that all inventory items are excluded from calculating the quick ratio due to their lower liquidity compared to other current assets. The quick ratio, also known as the acid-test ratio, focuses on a company's ability to meet its short-term obligations using its most liquid assets.

Inventory, in general, is considered less liquid because it may take time to sell and convert into cash, especially if the inventory consists of products that are not quickly moved or are subject to market fluctuations. Items like accounts receivable and short-term investments, on the other hand, can typically be converted into cash more quickly.

By excluding all types of inventory from the quick ratio calculation, the measure allows for a more stringent assessment of a company's short-term financial health. This focus on high liquidity assets ensures that the ratio provides a clearer picture of the company's ability to cover immediate liabilities without relying on the sale of inventory.