GENERAL KNOWLEDGE

Detailed explanation-1: -The quick ratio assumes that all current liabilities have a near-term due date. Total current liabilities are often calculated as the sum of various accounts including accounts payable, wages payable, current portions of long-term debt, and taxes payable.

Detailed explanation-2: -Quick Liabilities = All Current Liabilities – Bank Overdraft – Cash Credit. The ideal quick ratio is considered to be 1:1, so that the firm is able to pay off all quick assets with no liquidity problems, i.e. without selling fixed assets or investments.

Detailed explanation-3: -What Is Included in the Quick Ratio? The quick ratio is the value of a business’s “quick” assets divided by its current liabilities. Quick assets include cash and assets that can be converted to cash in a short time, which usually means within 90 days.

Detailed explanation-4: -Here inventory is considered as less secure than other current assets and prepaid expenses as the name suggests are paid in advance for a reason, bank overdraft and cash credit are usually secured against inventory and so all these 4 items are excluded while calculating quick ratio.

Detailed explanation-5: -The quick ratio offers a more conservative view of a company’s liquidity or ability to meet its short-term liabilities with its short-term assets because it doesn’t include inventory and other current assets that are more difficult to liquidate (i.e., turn into cash).