donwloadimg

Download App

Log in to access Online Inquiry

What Is The Quick Ratio?

Views 6782022.06.27

https://course-img-1251001049.cos.accelerate.myqcloud.com/202206270000012857f0affb8c3.jpg

Key takeaways

  • The quick ratio measures a company's ability to pay its current liabilities by readily converting some of its current assets into cash

  • In theory, the higher the quick ratio, the better a company's liquidity and financial health

  • The quick ratio is considered a more conservative measure than the current ratio because the latter includes all current assets to cover current liabilities

Understanding Quick Ratio

The quick ratio measures a company's ability to pay its current liabilities without liquidating its inventory or obtaining additional financing.

The formula to calculate the quick ratio is:

article image

or

article image

In theory, the higher the quick ratio, the better a company's liquidity and financial health; the lower the ratio, the more likely the company will struggle with paying liabilities.

The quick ratio is more conservative than the current ratio because the former excludes inventory and other less liquid current assets. The quick ratio considers only assets that can be readily converted into cash. On the other hand, the current ratio includes inventory and prepaid expenses. Inventories take time to be liquidated for most companies. Prepaid expenses, though an asset, cannot be used to pay current liabilities, so they're omitted from the quick ratio.

Example of Quick Ratio

The chart below is the balance sheet from $Apple(AAPL.US)$ annual report for the fiscal year endedSeptember 25, 2021.

article image

The annual report shows:

The Cash & Equivalent of $Apple(AAPL.US)$ were 34.94 Billion on September 25, 2021.

The Current Marketable Securities of $Apple(AAPL.US)$ were 27.699 Billion on September 25, 2021.

The Accounts Receivable & Other Receivables of $Apple(AAPL.US)$ were 26.278 + 25.228 = 51.506 Billion on September 25, 2021.

The total current liabilities of $Apple(AAPL.US)$ were 125.481 Billion on September 25, 2021.

So, according to the formula:

article image

The content in this article is intended for general circulation and informational purposes only. It does not take into account the investment objectives, financial situation or needs of any particular person and should not be relied on as advice or recommendation. Information provided in this article are not specifically intended for or specially targeted at the public in any specific jurisdiction. Neither Moomoo Inc. nor its affiliates are licensed Financial Advisers and do not provide financial advice. You are advised to consult your financial adviser before making any commitment to invest in any capital markets product. The information published is not and does not constitute or form part of any offer, invitation or solicitation to subscribe or to enter into any transaction in capital markets products. Moomoo is a professional trading app offered by Moomoo Inc. In the U.S., investment products and services on Moomoo are offered by Futu Inc., Member FINRA/SIPC. In Singapore investment products and services are offered through Futu Singapore Pte. Ltd., regulated by the Monetary Authority of Singapore (MAS). This advertisement has not been reviewed by the MAS. Moomoo Inc., Futu Inc. and Futu Singapore Pte. Ltd are affiliated companies. Any illustrations, scenarios, or specific securities referenced herein are strictly for illustrative purposes. Past investment performance does not guarantee future results. Investing involves risk and the potential to lose principal.

Trade like a pro with moomoo

Get free stock and start your professional trading today

Terms and conditions apply right-arrow