0 XP   0   0   0

Quick Ratio

Measures if the company is able to pay off Short-term Debt but only using the most liquid assets.

How to use quick ratio

Penke

A quick ratio of 0,8 means the company can pay off $0,8 for each $1 in debt (using most liquid assets).

  • Higher is better.
  • Above 1 is considered healthy but always comparethe company to the  industry mean.
  • Can be very different between industries.
  • Can be used to compare companies.

Why do investors use quick ratio in their analysis

Shows how fast the company can pay off its short term debts. This shows if the company can survive emergencies due to market changes or other reasons.

The three steps every investor should look at:

  • What is the current Quick Ratio?
  • How does it compare to the industry?
  • What is the trend?

Things to be aware of

  • Only compare with other companies in the same industry.
  • Incorporates only most liquid assets.

How to calculate quick ratio

 Quick ratio = cash and equivalents + marketable securities + accounts receivable / current liabilities

Real life example

A real life example of Tesla. You need the following data to determine operating ratio:

  • Quick ratio = cash and equivalents + marketable securities accounts receivable \ current liabilities
  • ($18,324,000 $519,000 + $2,081,000) \ $21,821,000 = 0.95
Penke

Tesla can pay off $0,95 for each $1 dollar in debt in the short term (using only fast liquid assets).

The quick ratio measures the same thing as the current ratio, only it uses the most liquid assets a company has. Meaning, the assets that can be sold for cash the easiest and fastest.

As the quick ratio only incorporates the most liquid assets, you should also check the current ratio which also includes less liquid assets. But they may be harder to sell. 

Comments

Join the conversation.

Leave a comment

Stay informed with my latest content.

Subscribe to my newsletter and receive an email as soon as I add content to PenkeTrading.com.


By clicking Register, you agree to the General Terms and Conditions.
Penke's Market Notifications
AAGH.PINK
12 minutes ago

I found you a STOCH Bullish Reversal Divergence on the daily chart of AAGH.PINK.

AAGH.PINK Daily Candlestick Chart
WSNAF.OTCQB
15 minutes ago

I found you a STOCH Bearish Reversal Divergence on the daily chart of WSNAF.OTCQB.

WSNAF.OTCQB Daily Candlestick Chart
XINT.ST
48 minutes ago

I found you a Bearish Three Line Strike Candle Pattern on the daily chart of XINT.ST.

XINT.ST Daily Candlestick Chart
ELAN.NYSE
1 hour ago

I found you a STOCH Bullish Reversal Divergence on the daily chart of ELAN.NYSE.

ELAN.NYSE Daily Candlestick Chart
EIGR.NASDAQ
1 hour ago

I found you a STOCH Bullish Reversal Divergence on the daily chart of EIGR.NASDAQ.

EIGR.NASDAQ Daily Candlestick Chart
EFSC.NASDAQ
1 hour ago

I found you a STOCH Bullish Reversal Divergence on the daily chart of EFSC.NASDAQ.

EFSC.NASDAQ Daily Candlestick Chart
DZZ.NYSE ARC
1 hour ago

I found you a STOCH Bullish Reversal Divergence on the daily chart of DZZ.NYSE ARC.

DZZ.NYSE ARC Daily Candlestick Chart
CANS.V
1 hour ago

I found you a Overbought RSI (Relative Strength Index) on the daily chart of CANS.V.

CANS.V Daily Candlestick Chart
DRMA.NASDAQ
1 hour ago

I found you a RSI Bullish Hidden Divergence on the daily chart of DRMA.NASDAQ.

DRMA.NASDAQ Daily Candlestick Chart
DRFS.PINK
1 hour ago

I found you a STOCH Bullish Reversal Divergence on the daily chart of DRFS.PINK.

DRFS.PINK Daily Candlestick Chart
DISH.NASDAQ
1 hour ago

I found you a STOCH Bearish Hidden Divergence on the daily chart of DISH.NASDAQ.

DISH.NASDAQ Daily Candlestick Chart
EDGE.TO
1 hour ago

I found you a Golden Cross on the daily chart of EDGE.TO.

EDGE.TO Daily Candlestick Chart
ENRG.V
2 hours ago

I found you a STOCH Bullish Reversal Divergence on the daily chart of ENRG.V.

ENRG.V Daily Candlestick Chart
EFR.TO
2 hours ago

I found you a STOCH Bullish Reversal Divergence on the daily chart of EFR.TO.

EFR.TO Daily Candlestick Chart
DML.TO
2 hours ago

I found you a STOCH Bullish Reversal Divergence on the daily chart of DML.TO.

DML.TO Daily Candlestick Chart
DOO.TO
2 hours ago

I found you a Bullish Three Line Strike Candle Pattern on the daily chart of DOO.TO.

DOO.TO Daily Candlestick Chart
CIX.TO
2 hours ago

I found you a STOCH Bullish Reversal Divergence on the daily chart of CIX.TO.

CIX.TO Daily Candlestick Chart
BYL.TO
2 hours ago

I found you a STOCH Bearish Hidden Divergence on the daily chart of BYL.TO.

BYL.TO Daily Candlestick Chart
3LLV.PA
2 hours ago

I found you a MACD Bearish Reversal Divergence on the daily chart of 3LLV.PA.

3LLV.PA Daily Candlestick Chart
MAC.LSE
3 hours ago

I found you a STOCH Bearish Hidden Divergence on the daily chart of MAC.LSE.

MAC.LSE Daily Candlestick Chart
KCT.LSE
3 hours ago

I found you a STOCH Bullish Reversal Divergence on the daily chart of KCT.LSE.

KCT.LSE Daily Candlestick Chart
S5FI.INDX
3 hours ago

I found you a STOCH Bullish Reversal Divergence on the daily chart of S5FI.INDX.

S5FI.INDX Daily Candlestick Chart
MMFI.INDX
3 hours ago

I found you a STOCH Bullish Reversal Divergence on the daily chart of MMFI.INDX.

MMFI.INDX Daily Candlestick Chart
STU.V
4 hours ago

I found you a STOCH Bearish Reversal Divergence on the daily chart of STU.V.

STU.V Daily Candlestick Chart