Question

What is the Quick Ratio given the following information? Current Assets = $477.50 Inventory = $275 Current Liabilities = $1075

Answer 1

Answer:

Quick Ratio = 0.19. A quick ratio of 0.19 means that this company might not be able to fully pay off its current liabilities in the short term.

Step-by-step explanation:

1. For solving this question, we need to use the Quick ratio formula, this way:

Quick Ratio = (Current Assets - Inventory - Prepaid Expenses) / Current Liabilities

2. Let's replace the formula with the real values:

Quick Ratio = (477.50 - 275 - 0)/ 1,075 (Prepaid Expenses = 0)

Quick Ratio = 202.50 / 1,075

Quick Ratio = 0.1884

Quick Ratio = 0.19 (Rounding to two decimal places)

3. Interpretation

A quick ratio below 1 means that the company might not be able to fully pay off its current liabilities in the short term, in this case it's 0.19 for this company.  A quick ratio of 1 is considered to be the normal, as it indicates that the company is able to pay off its current liabilities with exactly enough assets to be immediately liquidated.