What it is:
How it works (Example):
For example, let's say that Company XYZ has $60,000 in, $40,000 in , and $10,000 in . We would say that Company XYZ has $110,000 in quick assets.
Why it Matters:
(+ + )/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 , XYZ Company had $1.69 of very 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.