The ______ is a measure of how well a company can meet its short term financial...

The ______ is a measure of how well a company can meet its short term financial liabilities.

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Expert Solution

The answer is Quick Ratio

The Quick Ratio is a measure of how well a company can meet its short term financial liabilities.

To understand the statement above we need to look at the formula of Quick Ratio

Quick Ratio = (Current Assets - Inventory) / Current Liabilities

Current Assets (-) Inventory is known as Quick Assets. The Quick Assets are those assets which can be converted into cash in a short span of time. The sale of inventory involves more time as buyers for such inventory may not be readily available. Therefore it is excluded from Current Assets to get Quick Assets. The Quick assets generally comprises of Cash. Accounts Receivable, Marketable securities and Short term investments.

These assets can be converted to cash quickly and such cash can be used by a company to pay off its short term financial liabilities. Greater quick ratio represents the sound position of the company to meet its short term financial liabilities as they become due.

Therefore it can be concluded that Quick Ratio is a measure of how well a company can meet its short term financial liabilities.

jeff jeffy answered 1 year ago

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