What are Quick Assets?
Quick assets are defined as assets that can quickly be converted to cash. Most typically, quick assets include: cash, accounts receivable, marketable securities, and sometimes (not usually) inventory.
Quick Assets Example
Let's say that Company XYZ has $60,000 in cash, $40,000 in receivables, and $10,000 in marketable securities. In this example of quick assets, we would say that Company XYZ has $110,000 in quick assets.
Why Are Quick Assets Important?
Quick assets are a key part of the quick ratio, a measure of whether – and how well – a company can pay its short-term financial liabilities. Quick ratio is also referred to as the acid-test ratio.
A common rule of thumb is that a quick ratio of 1-to-1 (or greater) means that a company can pay its current liabilities.
Quick Ratio Formula
The most common formula for quick ratio is as follows:
(+ + )/Current Liabilities
Quick Ratio Formula Example
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.