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Quick ratio (also known as an acid test) or current ratio, accounting ratios used to determine the liquidity of a business entity; In accounting, the liquidity ratio expresses a company's ability to repay short-term creditors out of its total cash. It is the result of dividing the total cash by short-term borrowings.
Quick ratio is liquidity indicator that defines current ratio by measuring the most liquid current assets in the company that are available to cover liabilities. Unlike to the current ratio, inventories and other assets that are difficult to convert into the cash are excluded from the calculation of quick ratio. [22] [23]
The current ratio is an indication of a firm's accounting liquidity. Acceptable current ratios vary across industries. [1] Generally, high current ratio are regarded as better than low current ratios, as an indication of whether a company can pay a creditor back. However, if a company's current ratio is too high, it may indicate that the ...
In finance, the quick ratio, also known as the acid-test ratio, is a liquidity ratio that measures the ability of a company to use near-cash assets (or 'quick' assets) to extinguish or retire current liabilities immediately. It is the ratio between quick assets and current liabilities. A normal liquid ratio is considered to be 1:1.
For a corporation with a published balance sheet there are various ratios used to calculate a measure of liquidity. [1] These include the following: [2] The current ratio is the simplest measure and calculated by dividing the total current assets by the total current liabilities. A value of over 100% is normal in a non-banking corporation.
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Financial ratios are categorized according to the financial aspect of the business which the ratio measures. Liquidity ratios measure the availability of cash to pay debt. [2] Activity ratios measure how quickly a firm converts non-cash assets to cash assets. [3] Debt ratios measure the firm's ability to repay long-term debt. [4]
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