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Bank Promotion Exams |
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Quick Ratio or Acid Test Ratio The quick ratio or acid test ratio is a liquidity ratio that measures the ability of a company to pay its current liabilities when they come due with only quick assets. Quick assets are current assets that can be converted to cash within 90 days or in the short-term. Cash, cash equivalents, short-term investments or marketable securities, and current accounts receivable are considered quick assets. Short-term investments or marketable securities include trading securities and available for sale securities that can easily be converted into cash within the next 90 days. Marketable securities are traded on an open market with a known price and readily available buyers. Formula Quick Ratio or Acid Test Ratio = (Cash + Cash Equivalents + Short Term Investments + Marketable Securities + Accounts Receivable) / Current Liabilities or Quick Ratio = (Current assets – Inventory - Advances - Prepayments Current Liabilities) / Current Liabilities Example 1 : M/s Raj&co's balance sheet included the following accounts: Cash: 10,000 Find the Quick Ratio Quick Ratio = Cash + Cash Equivalents + Short Term Investments + Marketable Securities + Accounts Receivable) / Current Liabilities = (10000+5000+1000) / 15000 ................................. Example 2 : M/s Raj&co's balance sheet included the following accounts: Inventory : 5,000 Find the Quick Ratio Quick Ratio = (Current assets – Inventory - Advances - Prepayments Current Liabilities) / Current Liabilities = (21500 - 5000 - 500) / 15000 ................................. Example 3 : XYZ Pvt Ltd has the following assets and liabilities as on 31st March 2015 (in Lakhs) : Non Current Assets Current Assets Current Liabilities Non Current Liabilities Find the Quick Ratio Quick Ratio = (Cash in hand + Cash at Bank + Receivables + Marketable Securities) / Current Liabilities .................................
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