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Calculate the quick ratio for Urban Jungle Pet Supply, when:
Calculate quick ratio from the following information:
The quick ratio (sometimes known confusingly as the cash ratio) measures a company’s liquidity, the ability pay its debts with cash or current assets such as accounts receivable and marketable securities. These assets can be quickly converted to cash. The ratio is calculated by adding the values of cash, cash equivalents, marketable securities and accounts receivable and dividing the result by the total current liabilities of a business.
The quick ratio also indirectly measures financial risk by helping analysts determine whether a business would be able to pay off its debts immediately by using its most liquid assets.
Generally, a higher quick ratio is preferable because it indicates greater liquidity. A value of less than one indicates that a business would not be able to repay all its debts by using its most liquid assets. A quick ratio of 1.00 indicates the most liquid assets of a business are equal to its total debts. The business will just manage to repay all its debts by using its cash, marketable securities and accounts receivable. Values greater than one indicate that the most liquid assets of a business exceed its total debts. However a quick ratio which is quite high, say 4.00, is not favorable to a business. Very high vales suggest idle current assets, which could have been used to create additional projects and higher profits. In other words, very high quick ratio value might indicate inefficiency.
Quick ratio = (Cash + Marketable Securities + Receivables) / Current Liabilities