Quick Assets Definition, Formula, List Calculation Examples

November 23, 2023April 18, 2025 Divya Kumari 0 Comments

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A ratio of 1 indicates the Company has just sufficient assets to meet the current liabilities. In contrast, the ratio of less than 1 indicates the Company may face liquidity concerns in the near term. Quick assets, swiftly convertible to cash, differ from current assets, which encompass inventory. Inventory, challenging to convert quickly, may not be readily available for settling current liabilities.

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Short-Term Investments in Starbucks were $228.6 million in FY2017 and $134.4 million in FY2016. These assets can be converted to cash quickly, and there is no substantial loss of value while converting an asset into cash. Such securities can be easily sold at the quoted price in the market and converted to cash. The formula is straightforward, and it can be calculated by subtracting inventory from the current assets. Prepaid expenses and other current assets in Starbucks were at $358.1 million in FY2016 and $347.4 million in FY2016. While Unilever’s Quick Ratio has been declining for the past 5-6 years, we also note that the P&G Quick ratio is much lower than Colgate’s.

Businesses aiming for financial stability without paying dividends may maintain a significant portion of quick assets on their balance sheet, often in the form of marketable securities and/or cash. Conversely, struggling businesses may lack cash or marketable securities, relying on a line of credit to meet cash requirements. Lenders often use this ratio when evaluating a loan request from a potentially uncertain borrower. Quick assets are the company assets on the balance sheet, which can quickly get converted into cash without any considerable losses. Notes receivable may or may not be considered a quick asset, depending on their liquidity.

So let us understand the key difference between current assets and quick assets. A company operating in an industry with a short operating cycle generally does not need a high quick ratio. Financial ratios should be compared with industry standards to determine whether such ratios are normal or deviate materially from what is expected. Below is a tabular representation of the difference between current assets and quick assets. The company’s short-term investments are investments that are expected to convert into cash within one year. These generally consist of stocks, bonds, and other securities, which can be liquidated quickly and as and when required.

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Account receivables should be determined properly, and only those amounts should be added if the receivables can be collected within one year or less. Uncollectible, stale receivables, or long-term receivables generally for Companies in the construction business should not be added for calculating quick assets. The quick ratio can also be contrasted against the current ratio, which is equal to a company’s total current assets, including its inventories, divided by its current liabilities. The quick ratio represents a more stringent test for the liquidity of a company in comparison to the current ratio. Likewise, pre-paid expenditures remain excluded while calculating quick assets as their adjustment requires time, and they are not exchangeable in cash. Quick assets encompass resources readily used or converted into cash within one year or an operating cycle.

The current ratio, including all current assets, presents challenges due to the inclusion of inventory. Unlike the quick ratio, it is less effective in determining a business’s short-term liquidity. Quick assets include cash on hand or current assets like accounts receivable that can be converted to cash with minimal or no discounting. Higher the quick ratio is more favorable for the Company as it shows the Company has more liquid assets than the current liabilities.

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Quick ratio

Two of the assets in that category—cash ($5,000) and accounts receivable ($55,000)—are quick assets, which total $60,000. Account receivables are the amount the Company is still to receive from the goods and services they have provided to its customers. The Company has already given the services, but they are yet to receive the payment.

Analysts use these to measure a company’s liquidity of a Company in the short term. Based on its line of operations, the Company keeps some of its assets in the form of cash, marketable securities, and other asset forms to maintain its liquidity needs in the short term. A vast amount of such assets than required in the short term may imply the Company is not using its resources effectively.

Uncollectible, stale receivables, or long-term receivables generally for Companies in the construction business should not be added for calculating quick assets.
It is why companies maintain these quick assets according to the need and industry they are working in.
The formula is straightforward, and it can be calculated by subtracting inventory from the current assets.
Lenders often use this ratio when evaluating a loan request from a potentially uncertain borrower.
The quick ratio can also be contrasted against the current ratio, which is equal to a company’s total current assets, including its inventories, divided by its current liabilities.

Question : Quick assets do not include

Small QAs or smaller than the liabilities arising in the short term means that the Company may require additional cash to meet its demand. Depending on the nature of a business and the industry in which it operates, a substantial portion of quick assets may be tied to accounts receivable. Businesses further use their quick assets, such as short-term investments or cash, to fulfill their investing, operating, and financing requirements. Additionally, depending on the nature of a company and the industry in which it works, a considerable part of quick assets may remain linked to accounts receivable. The total of a company’s quick assets is compared to the total of its current liabilities in the calculation of the company’s quick ratio. In the example above, the quick ratio of 1.19 shows that GHI Company has enough current assets to cover its current liabilities.

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The most likely quick assets are cash, marketable securities, and accounts receivable, since they are already cash or can be converted into it within a short period of time. Quick assets are not considered to include non-trade receivables, such as employee loans, since it may be difficult to convert them into cash within a reasonable period of time. Other current assets may or may not be considered quick assets, depending on their liquidity. Quick assets are typically limited to cash, marketable securities, and accounts receivable, which are expected to be converted into cash quickly.

Quick assets exclude inventories, because it may take more time for a company to convert them into cash. Inventory can be quite difficult to convert into cash in the short term, and so is generally not available for paying off current liabilities. This is especially the case when a business has a large proportion of obsolete inventory, or inventory used as service parts (which tend to sell off over an extended period of time). Analysts most often use quick assets do not include quick assets to assess a company’s ability to satisfy its immediate bills and obligations that are due within a one-year period. This ratio allows investment professionals to determine whether a company can meet its financial obligations if its revenues or cash collections happen to slow down.

For example, if notes receivable are expected to be collected within one year and can be easily converted into cash, they may be considered as part of the quick assets. However, if notes receivable have longer maturity periods or are not easily converted into cash, they may not be considered quick assets. All current assets are included in the current ratio, which compares current assets to current liabilities. The inventory differential carries over into this ratio, which is not as useful as the quick ratio for determining the short-term liquidity of a business. Companies tend to use quick assets to cover short-term liabilities as they come up, so rapid conversion into cash (high liquidity) is critical. Inventories and prepaid expenses are not quick assets because they can be difficult to convert to cash, and deep discounts are sometimes needed to do so.

Conversely, businesses with predictable cash flows may require fewer quick assets. Inventory is not added to the calculation because inventories can take a longer period to be sold and then converted to cash. Inventories do not have a stipulated period; hence, we remove them while calculating the accounts receivables.

Working Capital: Meaning and Formula

Quick assets provide the liquidity necessary to pay the company’s obligations when they come due.
These quick assets help companies fulfill their short-term financial obligation as and when due to better manage their current assets and current liabilities.
For example, if notes receivable are expected to be collected within one year and can be easily converted into cash, they may be considered as part of the quick assets.
Assets that can quickly get converted into cash or cash equivalents without incurring high conversion costs are known as quick assets.
All current assets are included in the current ratio, which compares current assets to current liabilities.

It is called the acid test ratio concerning an acid test done by the gold miners in ancient times. The metal mined from the mines was put to an acid test, whereby if it failed from eroding from the acid, it is a base metal and not gold. Quick assets constitute parts of the current assets that comprise inventories. So to estimate the quick assets, you must deduct inventory from the value of your current assets. For effective management, businesses may opt to maintain substantial quick assets during periods of fluctuating revenue and profit to cover potential shortfalls.

This is particularly true when dealing with obsolete inventory or inventory used as service parts, which tends to sell over an extended period. Assets categorized as “quick assets” are not labeled as such on the balance sheet; they appear among the other current assets. As current assets, quick assets are typically used, and/or replenished within 45 days. Thus, the quick ratio is considered an acid test in finance, where it tests the Company’s ability to convert its assets into cash and pay off its current liabilities. To compare the two Companies – financial analysts use the quick assets ratio or acid test ratio.