Question

A company has​ $28,000 in cash and cash​ equivalents, $88,000 in shortminusterm ​investments, $122,000 in net current​ receivables, $64,000 in​ inventory, $14,000 of prepaid insurance and​ $11,000 of supplies. The total current liabilities of the firm are​ $304,000. The quick ratio of the company​ is: (Round your final answer to two decimal​ places.)

Answer 1

Given: Cash and Cash Equivalents = $28,000

Short term investments = $88,000

Net Current Receivables = $122,000

Inventory = $64,000

Prepaid Insurance = $14,000

Supplies = $11,000

Total current liabilities = $304,000

To Calculate: Quick Ratio

Solution: Quick ratio for a company represents it's ability to pay off it's current liabilities as and when they accrue. The ratio is computed as,

=
`(Quick\ Assets)/(Current\ Liabilities)`

Quick assets are those assets which can be quickly convertible into cash within a period of 90 days.

Quick Assets = Cash and cash equivalents + short term investments + current accounts receivables + marketable securities

Thus, Quick Assets = $28000 + 88,000 + 122,000 = $ 238,000

Current Liabilities = $304,000

Thus, Quick Ratio =
`(238,000)/(304,000)` = 0.78 approx.