# What are Quick Assets?

## Quick Assets

Quick assets refer to assets that can be quickly converted into cash or are already in cash form within a short period, typically 90 days or less, without losing their value. These assets are considered highly liquid and are used to measure a company’s short-term liquidity position, specifically its ability to cover its current liabilities without relying on the sale of its inventory.

The primary components of quick assets include:

Inventory is excluded from quick assets because it isn’t always easy to liquidate on short notice without potentially incurring losses, especially if it has to be sold at a discount or if there’s limited demand for the inventory items.

The Quick Ratio (or Acid-Test Ratio) uses quick assets to gauge a company’s short-term financial health. It is calculated as:

Quick Ratio = Quick Assets / Current Liabilities

A higher quick ratio indicates a better position to cover short-term financial obligations using its most liquid assets.

## Example of Quick Assets

Let’s explore a hypothetical example to better understand quick assets and the Quick Ratio:

XYZ Company’s Balance Sheet Excerpt:

• Current Assets:
• Cash: \$10,000
• Cash Equivalents (e.g., Treasury Bills): \$5,000
• Marketable Securities: \$3,000
• Accounts Receivable: \$7,000
• Inventory: \$15,000
• Current Liabilities: \$20,000

To determine the quick assets for XYZ Company:

Quick Assets = Cash + Cash Equivalents + Marketable Securities + Accounts Receivable

Quick Assets = \$10,000 + \$5,000 + \$3,000 + \$7,000
Quick Assets = \$25,000

(Notice we did not include the inventory, which is valued at \$15,000, when calculating quick assets.)

Next, to determine the Quick Ratio:

Quick Ratio = Quick Assets / Current Liabilities
Quick Ratio = \$25,000 / \$20,000
Quick Ratio = 1.25

This means that for every dollar of current liabilities, XYZ Company has \$1.25 in quick assets. A Quick Ratio greater than 1 indicates that the company can cover its current liabilities without selling its inventory.

This example provides a simplified view, and in real-world scenarios, a company might have other considerations to factor in. However, the core idea remains consistent: Quick Assets are those assets that can be readily converted into cash, and the Quick Ratio provides an indication of the company’s liquidity position excluding inventory.