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Chapter 19

Quick ratio (Acid test ratio)

Current assets – inventory

–––––––––––––––––––––– = n:n

Current liabilities Expressed as a ratio

TUTOR GUIDANCE
 Better indication of short term liquidity as remove the illiquid inventory balance.

 Healthy level typically considered as 1:1.
 If current ratio healthy but quick ratio low, suggests risk of obsolete inventory.

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