Sources of Revenue: Broadcasting Rights
The consistent generation of revenue is important for the success of any sports league. If the organizers of any of these leagues have to spend a large amount of time and resources to collect revenues, then they will not be able to focus on organizing the game. This is where the broadcasting rights come into […]
Protectionist Sentiment over Flipkart Takeover
The Wal-Mart Flipkart deal has become historic in many aspects. Firstly, this is the biggest, most valued takeover of a company in India. Also, it gives entry to Wal-Mart to enter India via the e-commerce route. Many believe that this deal will pave the way for increasing globalization by increasing the FDI limit for the […]
Arguments against Tax Competition
Proponents of the free market generally believe that competition is good for the economy. They argue in favor of the competition every time. Hence, it is natural for them to feel that competition in taxes is also good. The general argument is that competition forces the governments to rationalize and become more efficient. However, there […]
Uber’s New Businesses
Uber is already a well-known brand across the world. Technically, the company is still a startup. However, Uber has a valuation of close to $70 billion. Also, the company is planning for an aggressive IPO. It is estimated that Uber’s post IPO valuation will be close to $120 billion. This is phenomenal given the fact […]
Capital Controls: Meaning, Types, Benefits and Downside
What are Capital Controls ? Capital controls are when the governments of nations restrict the inflow and outflow of capital into the economy. In a free market economy, there should be and would be no borders. However, this is not the case in reality. Countries want to ensure that their economies stay relatively stable in […]
The quick ratio is a variation of the current ratio. However, a quick ratio is considered by many to be a more conservative estimate than the current ratio. This characteristic fetches it the nickname of being the “Acid test ratio”.
The difference between the current ratio and the quick ratio is the fact that quick ratio excludes the inventory. In theory this may seem like a small difference, however in practice anyone who is aware about the difficulties involved in liquidating inventories at the right price will vouch for the conservativeness of this ratio. The quick ratio has been discussed in greater detail in this article.
Quick Ratio = (Current Assets - Inventories) / Current Liabilities
The quick ratio checks the company’s performance to fulfill its obligations in a situation when it is not able to liquidate its inventory. In such a situation the company will have to pay its current liabilities out of the cash and cash equivalents that it has on hand and the amount of money it has already tied up in accounts receivables. The ideal quick ratio is considered to be 1:1. However, this varies widely according to the different credit cycles prevalent if different industries. Hence an analyst must look at competing firms and the industry average before forming opinions based on the current ratio.
There are no assumptions made regarding the inventory, because it is excluded from the calculation of this ratio. However, there are assumptions made about debtors and the fact that they will pay up on time to finance the payment of short term liabilities that a company has on hand.
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