Which of the following statements correctly defines the current ratio and quick ratio?

• A. Current ratio equals current assets minus current liabilities; quick ratio equals cash plus marketable securities plus accounts receivable divided by current liabilities.
• B. Current ratio equals current assets / current liabilities; quick ratio equals (cash + marketable securities + accounts receivable) / current liabilities.
• C. Current ratio equals gross profit / current liabilities; quick ratio equals cash / current liabilities.
• D. Current ratio equals total assets / total liabilities; quick ratio equals cash / current liabilities.

Answer: (B)

Liquidity ratios assess a company's ability to meet short‑term obligations. The current ratio compares all current assets to current liabilities by dividing current assets by current liabilities. The quick ratio tightens this by using only the most liquid assets—cash, marketable securities, and accounts receivable—divided by current liabilities. This is why the statement that the current ratio is current assets divided by current liabilities and the quick ratio is (cash + marketable securities + accounts receivable) divided by current liabilities is correct. The other formulations misstate the formulas, such as using subtraction instead of division, relying on gross profit, or using total assets and total liabilities, which are not the standard liquidity measures.