Liabilities quick ratio

Cash, A/R, and S/T securities Current liabilities Quick ratio... 

Liquidity ratios are a measure of a company s ability to pay its shortterm debts. Current ratio is obtained by dividing the current assets by the current liabilities. Depending on the economic climate, this ratio is 1.5 to 2.0 for the chemical process industries, but some companies operate closer to 1.0. The quick ratio is another measure of liquidity and is cash plus marketable securities divided by the current liabilities and is slightly greater than 1.0. 

Quick ratio = (current assets — inventories — prepaid expenses) -f- current liabilities... 

The standard quick ratio that any organization strives to obtain is at least 1.0. Simply put, having a quick ratio of greater than 1.0 means that the organization has more quick assets than it has current liabilities. On the other hand, having a quick ratio of less than 1.0 means that the cash that organization has on hand would not be sufficient to pay all its current liabilities, particularly its short-term bills and other obligations. 

The cash or quick ratio expresses the ability of a company to cover from its assets an emergency. It is the cash plus marketable securities divided by the current liabilities. Atypical figure is greater than 1.0. 

Two measures of a company s liquidity are the current ratio and the cash (quick) ratio. The current ratio is defined as the current assets divided by the current liabilities, which is a measure of the firm s ability to meet its current obligations from current assets. A comfortable level of... 

Transactions that change the character of the net working capital but do not affect its value occur in a company. For example, a cash payment of 10,000 for accounts payable reduces both the current asset of cash by 10,000 and the current liability of accounts payable by 10,000, leaving the net working capital unchanged. However, this transaction affects both the current and the quick ratios. 

The acid-test ratio, also called the quick ratio, is a modification of the current ratio with the aim of obtaining a better measure of the liquidity of a company. In place of current assets, only assets readily convertible to cash, called quick assets, are used. Thus, it is defined as the ratio of current assets minus inventory to current liabilities. Marketable securities, accounts receivable, and deferred income tax assets are considered to be part of quick assets. From Table 16.3, the quick assets for U.S. Chemicals, in millions of dollars, is 4,630 - 1,420 -312 = 2,898. This gives an acid-test ratio of 2,898/4,153 = 0.70, which is not a desirable ratio, since it is less than one. At the end of the year 2000, Monsanto Company had a much better acid-test ratio of 1.35. 

Current ratio is a liquidity measure computed by dividing the current assets by current liabilities it measures short-term solvency or the ability of a firm to meet current liabilities. Because current assets include inventory that may or may not be convertible into immediate cash, the quick ratio is frequently used in addition to the current ratio. The quick ratio is calculated by dividing cash plus marketable securities and discounted receivables by current liabilities. Satisfactory values for these two ratios are 1.2-2.0 for current ratio and 1.0-1.2 for quick ratio. 

Quick ratio = (Current assets - Inventories)/Current liabilities = ( 22,203 - 3,409)/ l7,839 = 1.05 times... 

Liquidity can be expressed as the ratio of liquid assets (cash plus debtors) to current liabilities. Such assets are also known as Quick assets , i.e. capable of swift realization. 

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