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QUICK RATIO

Discuss QUICK RATIO within the Financial Management forums, part of the PUBLISH / UPLOAD PROJECT OR DOWNLOAD REFERENCE PROJECT category; QUICK RATIO This ratio is also termed as ‘acid test ratio’ or ‘liquidity ratio’. Quick ratio is more severe and ...

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Abhijeet S
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QUICK RATIO - September 23rd, 2010

QUICK RATIO


This ratio is also termed as ‘acid test ratio’ or ‘liquidity ratio’. Quick ratio is more severe and stringent test of a firm’s ability to meet current obligation. The ratio is ascertained by comparing the liquid assets to current liabilities. An asset is liquid, if it can be converted into cash immediately or reasonably soon without a loss of value.


Objectives: - the objective of computing this ratio is to measure the ability of the firm to meet the short term obligations.


Formula:-

Quick Ratio = Quick Assets
Current Liabilities



Here quick assets are those current assets which can be converted into cash immediately or at a short notice without loss of value.


Significance:-
Generally, a quick ratio of 1 to 1 is considered to represent a satisfactory current financial condition.


If it is less than 1, liquid assets no longer cover the payments due; if the value is much greater than 1, scarce resources are wasted by keeping it idle in a needlessly liquid condition.
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