The quick ratio is an indicator of a company’s short-term liquidity position and measures a company’s ability to meet its short-term obligations with its most liquid assets.
The higher the ratio, the greater the company’s liquidity this means that the company able to meet current obligations using liquid assets.
Formula to calculate quick ratio.
In a certain financial period of a firm, the value of the cash at hand and equivalent was $200,000, the value of the short term marketable securities was $ 60,000, the accounts receivables were worth $40,000 and the value of the current liabilities was $ 40,000. Determine the quick ratio of the firm.
Therefore, the quick ratio of the company is 7.5.