Net Quick Assets
Net quick assets refer to the value of a company’s quick assets minus its current liabilities.
Quick assets include cash, marketable securities, and accounts receivable, which are assets that can be quickly converted into cash. Current liabilities, on the other hand, include obligations that the company must pay within one year, such as accounts payable, short-term loans, and other similar obligations.
The formula to calculate net quick assets is:
Net Quick Assets = Quick Assets – Current Liabilities
The concept of net quick assets is similar to the quick ratio or acid-test ratio, which measures a company’s ability to pay off its current liabilities without relying on the sale of inventory. Net quick assets, however, provide a dollar amount rather than a ratio, giving a tangible measure of a company’s short-term liquidity after meeting its immediate obligations.
If a company has positive net quick assets, it suggests the company can cover its short-term liabilities with its most liquid assets. A negative value, on the other hand, might indicate potential short-term liquidity issues. However, it’s always essential to consider the context, including industry norms and the company’s specific circumstances.
Example of Net Quick Assets
Let’s consider an example of a hypothetical company, GHI Corporation.
Suppose GHI Corporation has the following assets and liabilities:
- Cash: $50,000
- Marketable Securities: $30,000
- Accounts Receivable: $20,000
- Current Liabilities (such as accounts payable, short-term loans, etc.): $70,000
First, we calculate the total quick assets by adding cash, marketable securities, and accounts receivable:
Quick Assets = Cash + Marketable Securities + Accounts Receivable Quick Assets = $50,000 + $30,000 + $20,000 = $100,000
Then, we calculate the Net Quick Assets by subtracting current liabilities from quick assets:
Net Quick Assets = Quick Assets – Current Liabilities Net Quick Assets = $100,000 – $70,000 = $30,000
So, GHI Corporation’s net quick assets amount to $30,000. This means that after settling its current liabilities, GHI Corporation would be left with $30,000 of its most liquid assets.
