[startupcfo]

NINJA Question –

Simulation #16

Quick Ratio = Current assets less inventories and prepaid assets ÷ Current liabilities
= (Cash + Receivables) ÷ (Total liabilities – LT Debt)
= ($2,400,000 + $1,623,800) ÷ ($3,042,000 – $1,000,000)
= 1.97

The fact pattern lists prepaid assets of $20,000. Why isn’t that factored into (along with the cash and AR) the Quick Ratio calculation? I thought a quick ratio was for all current assets with the sole exception of inventory.

BEC - 87 | 02/28
REG - 70 | 06/10, REMATCH | 08/30
AUD - XX | 09/10
FAR - XX | 12/10

[Anonymous]

it's a measure of liquidity. Ppd expenses are cash out the door for a future economic benefit but will not convert to cash in a year or the operating cycle (whichever is longer).

[Author]

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