Quick Ratio - Meaning, Formula, Calculation & Interpretations

In this tutorial, we will look at the meaning, interpretation, and significance of quick ratio in depth. Using the Colgate Case Study, we will understand the calculations and interpret the results.
Download the Colgate Excel Model Ratio Analysis Template: We will use an excel template for the analysis. You can download the ratio analysis template from this link - www.wallstreet...
What is a Quick Ratio?
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The quick ratio, also known as the acid test ratio, measures a company's ability to repay short-term debts using its most liquid assets. It is calculated by adding the company's total cash and equivalents, accounts receivable, and marketable investments and then dividing it by its total current liabilities.
Formula
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Quick ratio Formula = Quick assets / Quick Liabilities
= (Cash and Cash Equivalents + Accounts receivables) / (Current liabilities - Bank overdraft)
Interpretation of Quick Ratio
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- A quick ratio greater than 1 indicates that the company has sufficient quick assets to cover its current liabilities.
- A company with a quick ratio of 1 means that its quick assets are equal to its current assets.
- A low quick ratio indicates that the firm's liquidity position is poor.
- However, the 1: 1 rule should not be followed blindly. For example, a company in an industry with a short operating cycle does not generally require a high quick ratio.
To know more about Quick Ratio, you can go to this link:
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[@wallstreetmojo]

Download the Colgate Ratio Analysis excel template used in this video from this link - www.wallstreetmojo.com/ratio-analysis-template/

[@poojaborkar1985]

Easy and understandable video. I learnt quick ratio in proper way. I loved the way of teaching. keep it up.

[@narayanbista490]

Very detailed and informative video on quick ratio in such a useful manner which makes it very easy to understand.

[@johnnynova6977]

you're bettter than my official university.. thank you keep it up

[@ashmitjacob4659]

The sessions are very helpful. Thank you.

[@lucascohen91]

Helpful Video.

[@jyotikrupashankarsingh2582]

Very informative video and I liked the Colgate case study that you have interpreted in this quick ratio. It was very easy and simple to understand this ratio.

[@mdc5936]

Legend! Love your work!

[@vedkr9887]

Thank you. Can companies manipulate assets and liabilities in a legal way. Wont the auditors find out. Will be nice if you can also educate us on how to identify such manipulation with a potential case study

[@altafklokhandwala1885]

Hi Dheeraj, The Video is very helpful. I have some questions in respect to ratio analysis. Can you elaborate that after drawing the conclusion that current and quick ratio are declining how can we investigate / identify further as to what is the actual problem and how to fix it?

[@thandonm]

I was coming to ask this too. He explained it so well with the current ratio. Still, it was a good video. He is a good teacher!

[@mukeshahuja2876]

Kindly guide about prepaid expense role into quick ratio

[@Kishore-fy9tk]

PLEASE UPLIAD VIDEO ABOUT PERSONAL FINANCE AND BASIS OF STOCK MARKET TERMINOLOGIES

[@xandarwilder6814]

very good explanation

[@shajupauljohn3244]

Good Informative videos

[@chongkl820]

quick asset = current assets - inventory. How about prepaid expense? In your formula, you only include cash + account recevable + short term marketable securities.

[@c22manas]

It would be beneficial if you can create a tutorial series specific to IT Service industry as the income statement and Balance sheet of such companies are slightly different.

[@NareshkvNareshkv024]

I'm waiting for the Next sessions

[@raghavchoudhary1656]

Sir please explain me one thing related to the numerator of quick ratio: my doubt is you had previously said about current ratio that if a company has the ratio less than 1 it's a negative one. So in this ratio, numerator is basically getting reduced(means the inventory is now not getting considered), so why again during analysis we take 1 to compare whether the company is good or bad. Because the numerator is basically reduced and now to get a better comparison we should take less than 1, like instead of 1 take as 0.8 or something...

[@saba1551]

Hello dheeraj, 8:14 u clears the limitation of current ratio if current ratio doesn't provide the correct picture then why it is still in use why do we read it???

[@Culture_of_Man]

You can use both Current and Quick ratio to analyze how much a company is dependent on its inventory to pay its short term obligations. Otherwise, you'd have to look at inventory separately.

[@Mad1080]

Can you be more expandable withM and A topics... With some excel workings sheets?

[@ansarbinhashim82]

What about Prepaid Expenses? Is it include in quick ration

[@thusithachandramali4946]

In QR we should include prepaid expenses isnt sir...please tell me

[@michaelreynolds225]

Why can't I download the files? I'm not having a problem with downloads on any other applications!