Question

Use the following information to answer this question. Windswept, Inc. 2017 Income Statement ($ in millions) Net sales Cost of goods sold Depreciation Earnings before interest and taxes Interest paid Taxable income Taxes $10,020 8,110 500 $ 1,410 118 $ 1,292 452 $ 840 Net income Cash Accounts rec. Inventory Total Net fixed assets Total assets Windswept, Inc. 2016 and 2017 Balance Sheets ($ in millions) 2016 2017 $ 300 $ 330 Accounts payable 1,140 1,040 Long-term debt 2,020 1,800 Common stock $3,460 $3,170 Retained earnings 3,550 4,180 $7,010 $7,350 Total liab. & equity 2016 2017 $1,650 $1,560 1,170 1,370 3,480 3,460 710 960 $7,010 $7,350 What is the quick ratio for 2017?

Answer 1

Quick Ratio = Quick Assets Current Liabilities

Quick Assets = Cash and cash equivalents +Marketable Securities Account Receivables

Current Liabilities = Bills Payable +Accounts Payable +Other short term Liabilities

In the given Balance sheet, we can see that

Quick Assets includes Cash & Accounts Receivables and Current Liabilities includes Accounts Payable only.

So we can put the values in the formula:

330 + 1040 Quick Ratio =* 1560

880 =

So Quick Ratio for the 2017 is 0.88

Uses of Quick Ratio:

It is used to check the short term liquidity position of a company. To check how quick the company or business is able to pay off its short term liabilities. Generally a company which has quick ratio less than 1 cannot pay its current liabilities, so its also called "Acid Test Ratio".