ShmoopTube

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finance a la shmoop - what is the acid test ratio or the quick ratio quick how

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liquid are we now the quick ratio is a measure of how well or not so well a [Water coming out of a tap]

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company is positioned to be able to quickly pay off the bills that it owes

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aka its liabilities... why the quickly in there because the assets used to pay off

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the liabilities need to be quickly available assets like cash or bank CD's

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or publicly traded stocks or bills the company will collect the next ninety [Assets appear]

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days or so from people likely to pay them well the company likely owns other

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assets like a tractor smelting company but like is it really gonna sell that [Internet mouse cursor clicks search bar]

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smelter to then pay off its bill to U.S steel for steel....Ok well the actual ratio

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looks like this cash plus sellable securities plus money people owe the

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company divided by liabilities so basically the quick ratio compares your

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total liquid assets to how much you owe and it's important to note that you [Forklift drops inventory on factory floor]

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don't count your current inventory as part of your assets as it's typically

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hard to sell everything you have right at this moment and then not at some huge

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discount the higher the quick ratio the healthier the liquidity position of the

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company another good way to test your liquidity well stand in front of a [Man showering]

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radiator and see how quickly you evaporate [Girl stood by a radiator and begins to melt]

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