Why is the quick ratio considered more stringent than the current ratio?

The quick ratio is considered more stringent than the current ratio primarily because it excludes inventory from current assets. This distinction is significant because inventory might not always be easily convertible to cash and could take longer to sell, posing a risk in meeting short-term liabilities. The quick ratio, also known as the acid-test ratio, focuses on the most liquid assets—cash, cash equivalents, and receivables—providing a clearer picture of a company's ability to meet its short-term obligations without relying on the sale of inventory.

Using the quick ratio allows analysts to assess the financial health of a company more conservatively, as it reflects a more immediate liquidity position. This ratio is particularly useful in industries where inventory turnover is uncertain or slow, making the quick ratio a more practical measure of liquidity in those contexts.