Quick assets

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. 

An alternative to the current ratio is the quick ratio (also known as the acid test). For this ratio, quick assets are defined as assets that are easily converted to cash. Therefore, inventories and prepaid expenses (such as prepaid rent and insurance policies) are not included in calculating assets. Because the quick ratio considers only assets that are easily converted to cash (and therefore can be used to pay bills, etc.), it provides a better picture of a company s liquidity and its ability to meet its financial obligations. 

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. 

Now that we have the definition of current ratio and quick ratio, let s calculate these ratios for WHP (see Table 15-2, year 1). The current ratio at the end of year 1 is 450,000 -h 200,000 = 2.25, which appears to be acceptable. However, the amount of quick assets on hand at the end of year 1 is only 150,000... 

An essential consideration of financial managemenf is liquidity the ability to turn assets into cash quickly. Assets included on the balance sheet are... 

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. 

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 liabihty of accounts payable by 10,000, leaving the net working capital unchanged. However, this transac tion affects Doth the current and the quick ratios. 

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... 

Quick ratio A liquidity ratio that reflects a company s ability to satisfy its short-term obligations with its most liquid assets. 

While the group knew that Dow possessed an array of other intellectual assets (such as know-how, copyrights, trademarks and trade secrets), it reasoned that patents was an area in which it had a high probability of success, could demonstrate obvious value, and implementation of its new processes could be done quickly. 

Your people resources — human capital — are your most important assets. Rarely will other factors be as key to your long-term competihve advantage. Technology is readily available to organizations, product offerings are easily copied or adapted, and market niches quickly diminish as competitors see exploitable opportunities. 

Alfhough the current ratio is valuable, an organizahon may wish to go further to evaluate liquidity. The acid-test or quick ratio is a means to consider only the most liquid of fhe currenf assets and determine whether the firm can pay its short-term debt even more quickly. The formula for the quick ratio is ... 

Health systems researchers and public health experts need to address the requirement for rapid assessments of health care infrastructure that quickly identifies the status of the critical assets for providing care (facilities, medical supplies, and the workforce) during a disaster. Natural disasters are not predictable and there are rarely more than a few days warning of an impending event. Time does not allow for testing and retesting of tools or analysis of definitions and measures, and therefore they must be established in advance. Because needs assessments should be done as rapidly as possible it leaves little time for refining the processes. Further, the uniqueness of each disaster complicates research because of the variable populations, socioeconomic status, health care availability, and environmental conditions in every community. 

Talent management therefore has to become a top corporate priority, for chemical companies even more than for others. Executive talent is, in general, an under-managed corporate asset. Our survey data show that, on average, fewer than 10 percent of executives say that their companies develop people effectively and move low performers quickly. In the chemical industry, companies manage their physical and financial assets with some sophistication, but with few exceptions they have not made people a priority in the same way. 

In the 1980s, fundamental changes took place in the state-owned sector with the so-called privatization of the industry. First in Chile, then in the UK, the assets of the publicly-owned electricity authorities were vested in companies which issued equity shares to the general public. This change in ownership was coupled with a fundamental shift in the way electricity was produced and sold. New, cheaper, technologies such as gas-fired, combined cycle, gas turbine plant, which could be built more quickly than the traditional coal-fired steam turbine plant, and which is less labour intensive in its operation, was introduced extensively in the UK. The separate producers of electricity competed with each other on price (per kWh) to win market share. It is alleged, with some justification in the UK, that such competition has reduced the price to the end-user. 

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. 

Cash or quick Leverage current assets - inventory/current liabilities 1.0-1.5 times... 

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... 

It would be extremely difficult to predict by calculation what sequence of joystick movements would be needed to produce a desired X-T trajectory, and in feet impossible unless all the details of the reaction were known ahead of time. However, a human operator could quickly develop considerable intuitive expertise through repeated trial-and-error experience with a simulator or with a real reactor. This would raise the role of the technician in charge from the traditional reactor operator to a reaction phase plane pilot whose skill in covering the desired area of the reaction phase plane would be a great asset to expediting experimental work. 

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