Other receivables are usually amounts owed to the company by its employees and other parties. Trade receivables are amounts owed to the business by its customers. This includes all trade receivables and other receivables. This includes all securities held for investment purposes, such as stocks and bonds.Īccounts receivable. This includes the amounts currently held in checking and savings accounts. The accounts most commonly included in the current assets classification that are also part of the quick ratio calculation are as follows:Ĭash. Current assets are all assets expected to be liquidated within one year, while current liabilities are all obligations expected to be settled within one year. An analysis of excessively old accounts receivable can be found on a company’s accounts receivable aging report.Īs just noted, the quick ratio is determined by dividing certain current assets by selected current liabilities. The information needed for this calculation can be found on the balance sheet. (Cash + Marketable securities + Accounts receivable) ÷ Current liabilities = Quick ratio Do not include in the numerator any excessively old receivables that are not likely to be paid, such as anything over 90 days old. To calculate the quick ratio, summarize the totals for cash, marketable securities and trade receivables, and divide by current liabilities. This is a particularly useful ratio when a business is facing difficult financial circumstances, and needs to pay off a substantial amount of liabilities in the near term. Because of the exclusion of inventory from the formula, the quick ratio is a better indicator than the current ratio of the ability of a company to pay its immediate obligations. Inventory is not included in the ratio, since it can be quite difficult to sell off in the short term, and possibly at a loss. The key elements of current assets that are included in the ratio are cash, marketable securities, and accounts receivable. The quick ratio is used to evaluate whether a business has enough liquid assets that can be converted into cash to pay its bills.
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