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QUICK RATIO /ACID TEST RATIO /LIQUID RATIO

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QUICK RATIO /ACID TEST RATIO /LIQUID RATIO
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Abhijeet S
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QUICK RATIO /ACID TEST RATIO /LIQUID RATIO - October 5th, 2010

Quick assets are those current assets that can be converted into cash notice without much difficulty or loss in value. Quick assets include all current assets except inventories and prepaid expenses.



Quick liabilities are those current liabilities that are fluctuating and will fall due for payment any time. Quick liabilities include all current liabilities except bank overdraft and income received in advance.



Significance:


1. Quick ratio is a measure of immediate solvency or liquidity.

2. It is a more qualitative concept as it comments on the quality of current assets and liabilities.



Standard:

Traditionally a current ratio of 1:1 is considered satisfactory. However, if inventories can be sold quickly at a profit, even a lower ratio is acceptable.
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