The quick ratio is a valuable tool for investors because it can give them an idea of a company’s liquidity. You can find this information on a company’s balance sheet.įor example, assume that ABC Corporation has $100,000 in cash, $200,000 in accounts receivable, and $300,000 in short-term investments. To calculate a company’s quick assets, you must gather: The formula for calculating quick ratio is: You then subtract any inventory from your current assets to get your company’s “quick” assets. You’re looking for the total cash form that the company has on hand plus any short-term investments (inventory). The formula to calculate quick assets is: Using this information is an acid test for your business. It’s found under current assets and liabilities. You can find this information on your balance sheet assets. With this, you’ll know whether your company can cover short-term debt using your liquid assets. ![]() Moreover, you need quick assets if you want to know your quick ratio. So you must subtract inventories from current assets to get quick assets. Quick assets are part of your current assets, like inventory. When investors know where each source of financing comes from, they can determine the fair market value of your business. This is so investors know what the company’s real exposure is. Accounting standards and financing requirements dictate companies report the valuation of these assets. ![]() Moreover, these assets cannot convert to cash. But sometimes companies keep some of their assets in an alternate form of cash that cannot easily cash out. Quick assets are always current as they can convert to cash in a year or less. You can use this new cash balance for anything from paying employees to purchasing inventory. For example, a company might use its lines of credit for a quick cash infusion. Many companies rely on quick assets to help them get through strained financial periods. Quick assets allow a company to have access to its current ratio of working capital for daily operations. They’re usually shorter-term cash investments in securities, stocks, or other forms of equity. Quick assets are a company’s cash and cash equivalents, as well as things that can be easily turned into cash.
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