First Class Analysis Of Quick Ratio

Quick or Acid Test ratio is the proportion of the quick assets to quick current liabilities of a business.

Analysis of quick ratio. The term liquidity refers to the ability of a firm to pay its short-term obligations as and when they become due. The Quick Ratio In Practice The quick ratio is the barometer of a companys capability and inability to pay its current obligations. The special characteristic of this ratio from the other Liquidity Ratios is that Quick Ratio taking account only cash and cash equivalent items for calculation and interpretation.

The quick ratio is an indicator of a companys short-term liquidity position and measures a companys ability to meet its short-term obligations with its most liquid assets. Investors suppliers and lenders are more interested to know if a business has more than enough cash to pay its. It excludes inventories and prepayments.

Meaning of Quick Ratio. Quick ratio also known as the acid test ratio measure the ability of the company to repay the short term debts with the help of the most liquid assets and it is calculated by adding total cash and equivalents accounts receivable and the marketable investments of the company and then dividing it by its total current liabilities. Quick assets include all cash and cash equivalents securities that are easily marketable and AR Accounts Receivable and specifically exclude inventories.

And Quick current liabilities include all current liabilities except bank overdraft. The company should make arrangements to clear the dues of the company with immediate effect so that the quick ratio of the company is maintained. Ad Find Financial Ratio Analysis Pdf.

Quick ratio acid-test ratio measure of a companys liquidity or ability to pay short-term obligations calculated as. Quick assets divided by current liabilities quick assets include cash and cash equivalents short-term investments and short-term receivables. In a quick ratio the quick assets are used because they are easily converted into cash.

It is similar to the current ratio but is considered a more reliable indicator of a companys short-term financial strength. Interpretation Analysis Quick ratio is an indicator of solvency of an entity and must be analyzed over a period of time and also in the context of the industry the company operates in. The quick ratio is based on those assets and liabilities on a companys balance sheet that are most liquid which usually results in the following formula.