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An indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company. The quick ratio is calculated as:
Also known as "liquidity ratio", "cash asset ratio" and "cash ratio".
The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash. Companies that have trouble getting paid on their receivables or have long inventory turnover can run into liquidity problems because they are unable to alleviate their obligations. Because business operations differ in each industry, it is always more useful to compare companies within the same industry. This ratio is similar to the acid-test ratio except that the acid-test ratio does not include inventory and prepaids as assets that can be liquidated. The components of current ratio (current assets and current liabilities) can be used to derive working capital (difference between current assets and current liabilities). Working capital is frequently used to derive the working capital ratio, which is working capital as a ratio of sales.
Related Definitions
Acid-Test Ratio
A stringent indicator that determines whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory. The acid-test ratio is far more strenuous ...
Current Liabilities
A company's debts or obligations that are due within one year. Current liabilities appear on the company's balance sheet and include short term debt, accounts payable, accrued ...
Current Assets
1. A balance sheet account that represents the value of all assets that are reasonably expected to be converted into cash within one year in the normal course of business. Current assets ...
Working Capital
A measure of both a company's efficiency and its short-term financial health. The working capital ratio is calculated as: Positive working capital means that the company is able to pay ...
Inventory Turnover
A ratio showing how many times a company's inventory is sold and replaced over a period. the The days in the period can then be divided by the inventory turnover formula to calculate the ...
Investopedia explains 'Debt Ratio' A debt ratio of greater than 1 indicates that a company has more debt than assets, meanwhile, a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk. efinition of 'Receivables Turnover Ratio'
An accounting measure used to quantify a firm's effectiveness in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets. Formula:
Some companies' reports will only show sales - this can affect the ratio depending on the
Definition of 'Turnover'
1. In accounting, the number of times an asset is replaced during a financial period. 2. The number of shares traded for a period as a percentage of the total shares in a portfolio or of an exchange.
Investopedia ex
Related Definitions
Accounts Receivable - AR
Money owed by customers (individuals or corporations) to another entity in exchange for goods or services that have been delivered or used, but not yet paid for. Receivables usually come ... Read More
Asset
1. A resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit. 2. A balance sheet item ... Read More
Churning
1. An unethical practice employed by some brokers to increase their commissions by excessively trading in a client's account. This practice violates the NASD Fair Practice Rules. It is ... Read More
Asset Turnover
The amount of sales generated for every dollar's worth of assets. It is calculated by dividing sales in dollars by assets in dollars.Formula: Also known as the Asset Turnover Ratio. Read More
Inventory Turnover
A ratio showing how many times a company's inventory is sold and replaced over a period. the The days in the period can then be divided by the inventory turnover formula to calculate the
The days in the period can then be divided by the inventory turnover formula to calculate the days it takes to sell the inventory on hand or "inventory turnover days".