Build a Quick Ratio From the Balance Sheet
Calculate quick ratio and explain why it can tell a different liquidity story from current ratio.
A supplier has $90 million of current assets, including $25 million cash, $20 million receivables, $38 million inventory, and $7 million prepaid expenses. Current liabilities are $50 million. Quick ratio = (cash + marketable securities + receivables) / current liabilities A strong current ratio can hide weak immediate liquidity when inventory and prepaids dominate current assets. Calculate current ratio $90 million / $50 million = 1.8x. The broad current ratio looks comfortable because all current assets are included. Identify quick assets $25 million cash + $20 million receivables = $45 million. Inventory and prepaid expenses are excluded because they are…
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