How to work out the quick ratio
The quick ratio leaves inventory out. It asks whether a business can pay its short-term debts without selling any stock.
Task 1Leave out the inventory4 questions
Inventory is the slowest current asset to turn into cash. It has to be sold first, and then the customer has to pay.
The quick ratio asks a harder question: can the business pay its short-term debts without selling any inventory? It is (current assets less inventory) ÷ current liabilities.
| Item | £ |
|---|---|
| Current assets | |
| Inventory | 30,000.00 |
| Trade receivables | 24,000.00 |
| Bank | 6,000.00 |
| Current liabilities | |
| Trade payables | 30,000.00 |
| VAT owed to HMRC | 10,000.00 |
Task 2The two ratios side by side4 questions
Task 3A business with no inventory2 questions