Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Quick Assets

What it is:

Quick assets are assets that can be converted to cash quickly. Typically, they include cash, accounts receivable, marketable securities, and sometimes (not usually) inventory.

How it works (Example):

For example, let's say that Company XYZ has $60,000 in cash, $40,000 in receivables, and $10,000 in marketable securities. We would say that Company XYZ has $110,000 in quick assets.

Why it Matters:

Quick assets are a key part of the quick ratio, which is a measure of whether and how well a company can pay its short-term financial liabilities. The ratio is often called the acid-test ratio. The primary formula for quick ratio is:

(Cash + Marketable Securities + Accounts Receivable)/Current Liabilities

For example, here is some information about XYZ Company:


Using the primary quick ratio formula and the information above, we can calculate that XYZ Company’s quick ratio is:

($60,000 + $10,000 + $40,000)/$65,000  = 1.692
 
This means that for every dollar of XYZ Company’s current liabilities, XYZ Company had $1.69 of very liquid assets to pay those liabilities.

A common rule of thumb is that a quick ratio of 1-to-1 or greater means a company can pay its current liabilities.

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