Quick ratio: Difference between revisions
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(Current assets ''less'' Stock) / Current liabilities. | |||
The quick ratio gives a very rough indication of the liquidity (or solvency) of the reporting entity. | The quick ratio gives a very rough indication of the liquidity (or solvency) of the reporting entity. | ||
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'''Example''' | |||
Current assets (excluding stock) = £3m. | |||
Current liabilities = £4m. | |||
The Quick ratio is: | |||
= 3 / 4 | |||
= 0.75. | = 0.75. | ||
Revision as of 12:04, 18 March 2015
(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).
Example
Current assets (excluding stock) = £3m.
Current liabilities = £4m.
The Quick ratio is:
= 3 / 4
= 0.75.
Also known as the Acid test or the Acid test ratio.
