Current Liquidity

finance a la shmoop - what is the acid test ratio or the quick ratio quick how

liquid are we now the quick ratio is a measure of how well or not so well a [Water coming out of a tap]

company is positioned to be able to quickly pay off the bills that it owes

aka its liabilities... why the quickly in there because the assets used to pay off

the liabilities need to be quickly available assets like cash or bank CD's

or publicly traded stocks or bills the company will collect the next ninety [Assets appear]

days or so from people likely to pay them well the company likely owns other

assets like a tractor smelting company but like is it really gonna sell that [Internet mouse cursor clicks search bar]

smelter to then pay off its bill to U.S steel for steel....Ok well the actual ratio

looks like this cash plus sellable securities plus money people owe the

company divided by liabilities so basically the quick ratio compares your

total liquid assets to how much you owe and it's important to note that you [Forklift drops inventory on factory floor]

don't count your current inventory as part of your assets as it's typically

hard to sell everything you have right at this moment and then not at some huge

discount the higher the quick ratio the healthier the liquidity position of the

company another good way to test your liquidity well stand in front of a [Man showering]

radiator and see how quickly you evaporate [Girl stood by a radiator and begins to melt]