What is a quick ratio?

In financial accounting, the company can use a rapid ratio or acid tests to determine short -term liquidity. To calculate this ratio, the current value of the company's assets, with the exception of stocks, is divided by the current obligations of the company. The aim of the acid test is to estimate the financial power or weakness of the company. This is measured by the company's ability to immediately repay the outstanding debts using liquid assets. These assets include tradable securities and receivables. Generally, the assets are excluded from assets, as these shares may not be sold quickly. Inventory

are also excluded from the fast ratio formula because they may not be sold out immediately to generate cash flow. Inventory can also be sold for less than its accounting value. Items sold for rapid income generation are timely sold at prices lower than full retail value.

creditors sometimes use fast ratios. Based on this ratio, the creditor may decide PRto delete a loan or not. In general, ratio 1 is considered acceptable. This suggests that the company has immediate access to $ 1.00 in USD (USD) for every $ 1.00 debt that the company carries. A rapid ratio below 1 may indicate that the company cannot immediately repay its debts with its current cash position.

Investors also use a rapid ratio to help determine the value of the company's shares. In general, the desired ratio is 1 or higher. Conversely, if the ratio is very high, for example 10, it may be undesirable. A very high ratio may indicate that the company accumulates cash instead of investing it back in society to generate growth. This could encourage the potential buyer of shares to further explore the company.

AccCCOBABLE QUICK RETIOS may vary depending on industry. Investors and creditors can compare the rapid ratio of society to competitors. If the ratio isHigh or low - but in accordance with the situation throughout the industry - it is probably considered to be acceptable investors and creditors.

Further measurements used in financial accounting, current ratio, include all current assets of the company. These assets are divided by current obligations. Investors and creditors can compare a rapid ratio to the current ratio. If the current ratio is significantly higher than a rapid ratio, this may indicate that the company depends on the sale of its stock or borrowing funds to fulfill its financial obligations.