Explain the quick ratio - liquidity ratios, Managerial Accounting

Assignment Help:

Quick ratio

Meaning: this ratio establishes a relationship among quick assets and current liabilities

Objective: the objective of commuting this ratio is to calculate the ability of the firm to meet its short term obligation as and when due without relying upon the realization of stock

Components: there are two components of this ratio which are as under:

a) Quick assets: which means those current assets which can be converted into cash immediately or at a short notice without a loss of value and include the

b) Current liabilities

Computation: this ratio is computed by separating the quick assets by the current liabilities. This ratio is usually expressed as a pure ratio e.g., 1:1. In the form of a formula this ratio may be expressed as under

Interpretation: it shows rupees of quick assets available for each rupee of current liability. Traditionally a quick ratio of 1: is considered to be a satisfactory ratio. Though this traditional rule should not be used blindly since a firm having a quick ratio of more than 1 may not be meeting its short term obligations in time if its current assets consist of doubtful and slow paying debtors while a firm having a quick ratio of less than 1 may be meeting its short term obligations in time because of its very efficient inventory management.

Significance of quick ratio

The quick ratio is very useful in measuring the liquidity position of a firm. It measures the firm capacity to pay off current obligation immediately and is a more rigorous test of liquidity than the current ratio. It is used as a complementary ratio to the current ratio

 


Related Discussions:- Explain the quick ratio - liquidity ratios

Illustrate the techniques used in management accounting, Determine the The ...

Determine the The tools and techniques used in management accounting 1. Financial policy and accounting : every concern has to take a decision about the sources of raising fun

Multi-collinearity, Multi-collinearity Multiple regression analysis is ...

Multi-collinearity Multiple regression analysis is based on the assumption that the independent variables are not correlated with each other, whenever the independent variables

Types of non-controlled variables, Types of Non-Controlled Variables a) ...

Types of Non-Controlled Variables a) Parameters: These are input variables that for a given simulation have a constant value. They are factors which help specify the relat

Graphical method, GRAPHICAL METHOD Graphical methods can be used in gam...

GRAPHICAL METHOD Graphical methods can be used in games with no saddle points and having pay off m X 2 or 2 X n matrix. The aim is to substitute a much simpler 2 X 2 matrix for

What are the classification and computation of variances, Classification an...

Classification and computation of variances The computation and analysis of variances is the main aim of standard costing. The variance is the difference among the standard pe

Identify the management assertions, Identify the management assertions rela...

Identify the management assertions related to each of the fictitious supplier credits and unrecorded amounts in accounts payable using the facts presented

Explain phases of life cycle of a product, Q. Explain Phases of life cycle ...

Q. Explain Phases of life cycle of a product? Every product move through a life cycle having five phases as shown in figure and they are 1) Pricing during introduction 2)

What are the features of zero base budgeting, What are the Features of zero...

What are the Features of zero base budgeting 1) Manager of a decision unit has to completely justify why there should be at all any budget allotment for his derision unit. This

Prepare a revised performance report, Yuma foods acquire Aldo's tortillas s...

Yuma foods acquire Aldo's tortillas several years ago. Aldo's continued to operate as an independent company, except that Yuma foods has exclusive authority over capital investment

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd