Quick Ratio
The quick ratio is a measure of liquidity that measures the ratio of quick assets to quick liabilities. Quick assets are assets that are easily converted into cash, such as cash, accounts receivable, and inventory. Quick liabilities are liabilities that are easily paid off with cash, such as accounts payable and current debt.
The quick ratio is calculated by dividing quick assets by quick liabilities. A quick ratio of 1 indicates that the company is able to meet its quick liabilities in full. A quick ratio greater than 1 indicates that the company has excess liquidity. A quick ratio less than 1 indicates that the company has too little liquidity.
The quick ratio is a useful measure of liquidity because it is a measure of the company’s ability to meet its current liabilities. It is also a measure of the company’s ability to manage its cash flow.
