Liquidity Quick Ratio
factor.formula
Liquidity quick ratio calculation formula:
Quick assets calculation formula:
In the formula, all financial data are taken from the company's financial statements for the most recent reporting period.
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Measures a company's ability to repay short-term debt without relying on inventory liquidation.
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The portion of current assets that can be quickly converted into cash to repay debts. The original formula has been modified here to use prepaid accounts instead of accounts payable and deferred expenses, which is more in line with the definition of quick assets. Prepaid accounts are a type of cash that has been paid and can respond to the company's liquidity more quickly. Therefore, in the calculation of quick assets, they should be deducted from current assets.
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The total amount of debt that a company needs to repay within a year or an operating cycle represents the company's short-term debt pressure.
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Assets that can be converted into cash or used within one year, including cash, accounts receivable, short-term investments, inventory, etc.
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Goods that a business holds for sale usually take a long time to be converted into cash.
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Payments made by a business in advance to a supplier, usually for goods or services to be received in the future, cannot be converted into cash immediately.
factor.explanation
The higher the liquidity quick ratio, the stronger the company's short-term debt repayment ability is without relying on inventory liquidation, that is, the company can repay its short-term debts at a faster rate. A ratio higher than 1 is generally considered to indicate that the company has good liquidity and low financial risk; a ratio lower than 1 may indicate that the company faces greater short-term debt repayment pressure. Compared with the current ratio, the quick ratio excludes inventory and prepaid accounts with relatively weak liquidity, so it can more accurately reflect the company's true short-term debt repayment ability and liquidity status. This ratio has a high reference value when analyzing the short-term financial health of a company.