Given the following information, what is the company's Quick Ratio?

To determine the Quick Ratio, also known as the Acid-Test Ratio, you need to evaluate the company's liquid assets relative to its current liabilities. The Quick Ratio formula is:

Quick Ratio = (Current Assets - Inventories - Prepaid Expenses) / Current Liabilities

This measure is important because it provides insight into a company's ability to meet its short-term obligations without relying on the sale of inventory, which can be a less liquid asset.

Choosing the correct ratio demonstrates that the company has a solid financial position where its liquid assets outweigh its liabilities. A Quick Ratio of 1.2 indicates that for every dollar of current liabilities, the company has $1.20 in readily accessible assets, affirming a comfortable buffer beyond mere solvency. A ratio above 1 suggests that the company is in a healthy liquidity position, while a ratio below 1 would raise concerns about fulfilling immediate obligations.

The selected answer reflects a balance that suggests financial prudence and stability in managing assets and liabilities efficiently.