How is the quick ratio calculated?

The quick ratio, also known as the acid-test ratio, is a financial metric used to assess a company's short-term liquidity by measuring its ability to cover current liabilities with its most liquid assets. The calculation involves taking current assets and subtracting inventory, as inventory may not be as quickly convertible to cash compared to other assets like cash and receivables.

This means that the quick ratio is specifically focused on the assets that can be readily converted to cash. Therefore, the correct formula is derived from the need to exclude inventory from current assets before dividing by current liabilities, allowing for a clearer picture of the company's immediate financial health in relation to its liabilities.

The other options present different financial ratios or configurations. One involves total assets and total liabilities, which does not focus on immediate liquidity. Another option that subtracts inventory from current liabilities or incorrectly computes the proportions does not provide a relevant or meaningful assessment of liquidity. Thus, the correct understanding of the quick ratio emphasizes the importance of liquidity management by observing how well a company can meet its short-term obligations without relying on its inventory.