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What is quick ratio? |
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Answer» Quick ratio gives the proportion of quick assets to current liabilities. It indicates whether the business concern is in a position to pay its current liabilities as and when they become due, out of its quick assets. Quick assets are current assets excluding inventories and prepaid expenses, it is otherwise called “liquid ratio” or “acid test ratio”. Quick ratio = (Quick assets)/(Current liabilities) Quick assets = Current = Current assets - Inventories - Prepaid expenses. Higher the quick ratio, better is the short – term financial position of an enterprise. |
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