The Quick Ratio vs Target graph is the 6th graph of 8 graphs of our Financial Dashboard series. The ninth blog post in this series will show you how to put all these graphs on one page that both financial and non-financial executives will be able to understand.
The Quick Ratio is also known as the Acid test ratio. A company's Quick Ratio illustrates its ability to pay bills on a short term basis. The target ratio of 1.0 is a common target of companies and generally shows you have the ability to pay your bills in the short term. A ratio of 1.0 means the company has the same amount of near cash current assets as it does in current liabilities. Your management team will want to have input into the target that they are going to be held to hit.
The numerator of the Quick Ratio is the total of a company's Current Assets less Inventory less Prepaid Assets. Another way to calculate the numerator is to add Cash and Cash Equivalents, Marketable Securities and Accounts Receivable together. Accounts Receivable needs to be adjusted for Accounts Receivables not likely to collected.
The denominator is just the Current Liabilities of your company. Current Liabilities are the bills and debts to be paid within the next year.
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