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Anirudh Gupta
CA Aspirant|Content ... • 20d
Daily dose of financial ratios by Anirudh Gupta Quick ratio: =Quick assets/Current liabilities Where quick assets means, (current assets-inventory) Purpose: -Unlike the current ratio (as we have discussed in the previous post), the quick ratio shows : whether a company can meet its short-term obligations even if it makes no sales. -Quick Ratio considers only liquid assets those that can be quickly converted into cash, such as cash, bank balances, and receivables. -Helps to check instant liquidity, considering the fact that inventories has been excluded while calculating quick ratio. -useful for cash tight businesses. (ex-for early stage startups) Why are inventories excluded? -cannot be easily convertible into cash in times of financial difficulties, hence not included as a part of current assets. Ideal ratio: 1:1 or higher, -shows that the company is able to meet its short term obligations without selling inventory. On a final note, “Where there is a will,there is finance to learn so you can pay your bill” Follow for more. Will be Coming back with more ratios from tomorrow which will be interesting than what I have shared till now.Stay tuned!
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