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The quick ratio helps a company measure their immediate liquidity
The quick ratio helps a company measure their immediate liquidity
The quick ratio (also known as the Acid Test Ratio) is meant to measure a business' ability to pay any outstanding liabilities and obligations like short-term debt at any given moment.
This differentiates itself from the current ratio because it measures assets that can be quickly sold/converted into cash. It's best to think of this as measuring liquid assets, whereas the current ratio measures all assets, even those that can't be sold off quickly.
While in theory, it's better to have a high quick ratio (because it means a business can easily pay off debts and is low-risk), it's also not good to have too high of a ratio. If the ratio is too high it signals that the business is inflexible with its assets and unwilling to take risks at the expense of profitability.
Marketable securities stands for any short-term investments that can be sold.
Examples
Examples
In 2017, Apple had $20,280 in cash, $53,892 in short term investments, and $17,814 in receivables, and $100,814 in current liabilities (in billions).
(Cash + short-term investments + receivables)/current liabilites
= ($20,280+$53,892+$17,814)/$100,814
= 0.91
If the quick ratio is 2, and the current liabilities are $130,000, what is the amount of quick assets? (Round your final answer to the nearest dollar.)
2 = x/130,000
130,000*2 = x
$260,000 = x
Sources
Sources
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