What is the quick ratio if current assets are 80,000, current liabilities are 30,000, and inventory is 12,000?

To determine the quick ratio, also known as the acid-test ratio, the formula used is:

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

In this scenario, current assets are given as 80,000, current liabilities are 30,000, and inventory is 12,000.

First, we need to subtract inventory from current assets:

Quick Assets = Current Assets - Inventory

Quick Assets = 80,000 - 12,000

Quick Assets = 68,000

Next, we can apply the quick ratio formula:

Quick Ratio = Quick Assets / Current Liabilities

Quick Ratio = 68,000 / 30,000

Quick Ratio = 2.27

The result of 2.27 indicates a strong liquidity position, as the company has more than double its current liabilities covered by its more liquid assets. This reflects a good ability to meet short-term obligations without relying on inventory, which may not be as readily convertible to cash compared to other assets.

This understanding underscores the importance of the quick ratio as a measure of financial health, particularly in assessing a company's ability to cover its liabilities with its liquid assets.