Quick ratio: Difference between revisions
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If the quick ratio were to fall below 1.0, this would indicate that the entity would not be able to meet its current liabilities out of its cash in hand and the proceeds of its other current assets (excluding stock). | If the quick ratio were to fall below 1.0, this would indicate that the entity would not be able to meet its current liabilities out of its cash in hand and the proceeds of its other current assets (excluding stock). | ||
For example, if current assets (excluding stock) are £3m and current liabilities are £4m, the Quick ratio = 3/4 = 0.75. | |||
For example, | |||
if current assets (excluding stock) are £3m | |||
and current liabilities are £4m, | |||
the Quick ratio = 3/4 | |||
= 0.75. | |||
Also known as the Acid test or the Acid test ratio. | Also known as the Acid test or the Acid test ratio. | ||
== See also == | == See also == | ||
* [[Current ratio]] | * [[Current ratio]] | ||
* [[Liquidity]] | * [[Liquidity]] | ||
[[Category:Liquidity_management]] | |||
Revision as of 14:41, 26 November 2014
[Current assets less Stock] ÷ Current liabilities.
The quick ratio gives a very rough indication of the liquidity (or solvency) of the reporting entity.
If the quick ratio were to fall below 1.0, this would indicate that the entity would not be able to meet its current liabilities out of its cash in hand and the proceeds of its other current assets (excluding stock).
For example,
if current assets (excluding stock) are £3m
and current liabilities are £4m,
the Quick ratio = 3/4
= 0.75.
Also known as the Acid test or the Acid test ratio.
