bake - February 2017 - 6

management

Understanding Quick Ratio
Quick ratio, or acid test ratio, is a liquidity ratio that measures
the ability of any company to pay its current liabilities when
due with only quick assets, according to accounting industry
experts. As a small business owner, why this is important to you
is that your quick ratio can have a lot to do with your ability to
obtain a business loan.
"Quick ratio is a key ratio to determine business liquidity in
order to get business loans from the banks," points out Randall
McArthur, partner for the RPIA Group.

Higher quick ratios are more
favorable for companies
because it shows there are
more quick assets than
current liabilities.

According to Investopedia, the quick ratio measures the dollar
amount of liquid assets available for each dollar of current
liabilities. Thus, a quick ratio of 1.5 means that a company has

By comparison, a quick ratio of 2 shows the company has twice

$1.50 of liquid assets available to cover each $1 of current

as many quick assets than current liabilities. Quick assets are

liabilities. The higher the quick ratio, the better the company's

current assets that can be converted to cash within 90 days or

liquidity position.

in the short-term. Cash, cash equivalents, short-term investments or marketable securities, and current accounts receiv-

The quick ratio is calculated by adding cash, cash equivalents,

able are considered quick assets.

short-term investments, and current receivables together then
dividing them by current liabilities.

Short-term investments or marketable securities include
trading securities and available for sale securities that can

The quick ratio is often called the acid test ratio in reference to
the historical use of acid to test metals for gold by early miners
in America.
The acid test of ﬁnance shows how well a company can quickly
convert its assets into cash in order to pay off its current liabilities. It also shows the level of quick assets to current liabilities.
Sometimes company ﬁnancial statements don't give a breakdown of quick assets on the balance sheet. In this case, you can
still calculate the quick ratio even if some of the quick asset
totals are unknown. Simply subtract inventory and any current
prepaid assets from the current asset total for the numerator.
Higher quick ratios are more favorable for companies
because it shows there are more quick assets than current
liabilities. A company with a quick ratio of 1 indicates that
quick assets equal current assets. This also shows that the
company could pay off its current liabilities without selling
any long-term assets.

06 < FEB 2017 | bakemag.com

easily be converted into cash within the next 90 days.

http://www.bakemag.com

bake - February 2017

Table of Contents for the Digital Edition of bake - February 2017

bake - February 2017
Editor's note - Wild about donuts
Table of Contents
Management - Understanding Quick Ratio
New product success stories - Stuffed Bagel Bites
Technical corner - Eliminating PHOs in Pies
Practical marketing - Creative Bakery Signs
Food safety - Big Gains for Gluten-Free
Equipment innovations - Accuracy in Dividers
Wild about Donuts
Catering reinvented
Chocolate & decorating - The Origins of Chocolate
Sharing Smiles with CAKES
Breads - Farm to Table
Pastries - Savory Strength
Foodservice - Pizza Developments
Beverages - The Coffeehouse Vibe
Product showcase
Classifieds
Ad index
Formulation of the month
bake - February 2017 - bake - February 2017
bake - February 2017 - 2
bake - February 2017 - Editor's note - Wild about donuts
bake - February 2017 - 4
bake - February 2017 - Table of Contents
bake - February 2017 - Management - Understanding Quick Ratio
bake - February 2017 - 7
bake - February 2017 - New product success stories - Stuffed Bagel Bites
bake - February 2017 - 9
bake - February 2017 - Technical corner - Eliminating PHOs in Pies
bake - February 2017 - 11
bake - February 2017 - Practical marketing - Creative Bakery Signs
bake - February 2017 - 13
bake - February 2017 - Food safety - Big Gains for Gluten-Free
bake - February 2017 - 15
bake - February 2017 - Equipment innovations - Accuracy in Dividers
bake - February 2017 - 17
bake - February 2017 - Wild about Donuts
bake - February 2017 - 19
bake - February 2017 - 20
bake - February 2017 - 21
bake - February 2017 - 22
bake - February 2017 - 23
bake - February 2017 - 24
bake - February 2017 - 25
bake - February 2017 - 26
bake - February 2017 - 27
bake - February 2017 - Catering reinvented
bake - February 2017 - 29
bake - February 2017 - 30
bake - February 2017 - 31
bake - February 2017 - Chocolate & decorating - The Origins of Chocolate
bake - February 2017 - 33
bake - February 2017 - 34
bake - February 2017 - 35
bake - February 2017 - Sharing Smiles with CAKES
bake - February 2017 - 37
bake - February 2017 - Breads - Farm to Table
bake - February 2017 - 39
bake - February 2017 - Pastries - Savory Strength
bake - February 2017 - 41
bake - February 2017 - Foodservice - Pizza Developments
bake - February 2017 - 43
bake - February 2017 - Beverages - The Coffeehouse Vibe
bake - February 2017 - 45
bake - February 2017 - Product showcase
bake - February 2017 - 47
bake - February 2017 - Classifieds
bake - February 2017 - Ad index
bake - February 2017 - Formulation of the month
bake - February 2017 - 51
bake - February 2017 - 52
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