What Are Quick Assets?

What Are Quick Assets?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

Quick assets refer to those assets which can be swiftly converted into cash without losing their value. They include cash and cash equivalents, short-term investments, and current accounts receivable. Businesses often calculate and keep track of their quick assets to assess their short-term financial health and liquidity ability. By excluding inventories and other less liquid current assets, quick assets provide a sharper picture of how well a company can meet its immediate liabilities.

Related Questions

1. What is a Quick Ratio?

The quick ratio, also known as acid-test ratio, measures a company’s ability to use its most liquid assets (quick assets) to pay off its current liabilities. It’s calculated by dividing quick assets by current liabilities.

2. How is the Quick Ratio different from the Current Ratio?

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The current ratio includes all current assets including inventory in its calculation while the quick ratio excludes inventory and some other less liquid current assets. Therefore, the quick ratio provides a more conservative view of a company’s liquidity or ability to pay its debts.

3. Are inventories part of quick assets?

No, inventories are not considered as part of quick assets. Inventories may take significantly longer to convert into cash, hence they are excluded from quick assets.

4. What can a low Quick Ratio indicate?

A low Quick Ratio can indicate that a company is finding it hard to meet its short-term liabilities with its most liquid assets. It suggests potential liquidity problems and therefore, companies aim to maintain a quick ratio near or greater than 1.

5. How often should a company calculate its Quick Ratio?

While there’s no fixed rule, it is beneficial for companies to calculate their quick ratio regularly – monthly or quarterly – to monitor and manage their liquidity position effectively.