Certified Government Financial Manager (CGFM) Practice Exam 2025 – Your All-in-One Guide to Exam Success!

The quick ratio is a critical financial metric used to assess a company's short-term liquidity and ability to meet its immediate obligations without relying on the sale of inventory. This ratio provides insight into the company's financial health by measuring the most liquid assets - typically cash, cash equivalents, and receivables - against current liabilities.

The correct choice, which defines the quick ratio as current assets excluding inventories divided by current liabilities, is accurate because it focuses on the liquid assets that can be quickly converted to cash. By excluding inventories, the quick ratio provides a more stringent test of liquidity than the current ratio, which includes all current assets. This distinction is essential for stakeholders looking to understand a company's capacity to respond to short-term financial pressures.

In summary, the quick ratio's formula highlights its focus on readily available resources to cover liabilities, making it a valuable tool for financial analysis, especially in assessing the risk of insolvency.