Sometimes textbooks can give you too much information and overload you. This guy helps me with computing and business and explains problems with my understanding in minutes. indeed this guy is a teacher or should be as he is extremely talented.
Keep in mind having a high QR does not always mean a good thing. Companies generally should always be re-investing and not have too much cash and liquid assets on hand. Also, having a number lower than one is not really always a bad thing, and it should be regarded with the type of company and other ratios, including current ratio in mind; as some companies might generally be very asset-heavy but not super liquid (ex: airline, cruise companies, etc...) and this does not mean they are doing bad or they are in a bad economic state. Just thought to add in case anyone is looking for a deeper layer of knowledge.
but those are fixed assets. fixed assets are not included in the current and quick ratio calculation. liquidity is important for the operating cycle not how much theyre reinvesting or levering fixed assets. i understand where you’re going
Question! How come for company XYZ part B; you subtracted CA - I - PE to get Liquid Assets. But for company ABC, you added C + CE + AR + MS to get Liquid Assets. Please explain!
There are two ways to calculate quick ratio: QR = (Current Assets - Inventories - Prepaid Expenses) / Current Liabilities. QR = (Cash + Cash Equivalents + Marketable Securities + Accounts Receivable) / Current Liabilities. The first quick ratio formula emphasizes the items that can’t be quickly turned into cash. Inventories can be sold off for cash, but it might take more than 90 days. To attempt to sell them off rapidly, you might have to accept a large discount to their market value. Prepaid expenses are items like prepaid insurance and prepaid subscriptions. These aren’t included in how to calculate quick ratio because they can’t be used to pay current liabilities. Theoretically, you could attempt to cancel them and receive a refund, but it can take a long time and you will probably not receive the full value of the prepaid. The second quick ratio formula is equivalent to the first, but it concentrates on items that can be quickly turned into cash. Accounts receivable might be problematic to the extent you have accounts that will be delinquent, unpaid or have due dates longer than 90 days. However, in most situations, you should be able to collect the money due you within 90 days unless you have historical evidence to the contrary.
Thanks for the analysis! 🔍 Need some advice: 🙏 I have these words 🤨. (behave today finger ski upon boy assault summer exhaust beauty stereo over). What should I do with this? 🤷♂️
Maybe I missed something (it's morning and I haven't had my coffee? 😁 )... If inventory is not considered a liquid asset and normally isn't included in the Quick Ratio, why is it used in the quick ratio in this example?
Sir how to calculate liquid ratio when current assets and current liabilities are not given But here are given working capital, current ratio and stock
Working capital is current assets minus the current liablities. Current assets is 1. Total assets minus fixed assets (or) 2. Liquid assets + closing stock + prepaid expense.
hi my teacher also told me that there is in profitability ratio called acid test ratio can you make a video for it explaining why it is considered one of the profitability ratios and what is the equation of it plsssss i have an exam after 1 week i would really appreciate it
Current Ratio deals with time and it is asking are making money today? The Quick Ratio is asking are making money? If not, do you have the assets to pay for the company debt?
its getting silly now, how do you know so much. I was here for A Level chemistry, maths and I'm here again at university for economics and accounting, like howwww
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Sometimes textbooks can give you too much information and overload you. This guy helps me with computing and business and explains problems with my understanding in minutes. indeed this guy is a teacher or should be as he is extremely talented.
I started off studying chemistry but now I study accounting, didn't expect to be learning from the same guy all these years later.
I switched from engineering to business and your videos helped in both majors. what a hero!
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Keep in mind having a high QR does not always mean a good thing. Companies generally should always be re-investing and not have too much cash and liquid assets on hand. Also, having a number lower than one is not really always a bad thing, and it should be regarded with the type of company and other ratios, including current ratio in mind; as some companies might generally be very asset-heavy but not super liquid (ex: airline, cruise companies, etc...) and this does not mean they are doing bad or they are in a bad economic state.
Just thought to add in case anyone is looking for a deeper layer of knowledge.
great insights!
but those are fixed assets. fixed assets are not included in the current and quick ratio calculation. liquidity is important for the operating cycle not how much theyre reinvesting or levering fixed assets. i understand where you’re going
True but having a good cash position is helpful in handling economic ups and downs
Generally, having a High QR is good.
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Question! How come for company XYZ part B; you subtracted CA - I - PE to get Liquid Assets. But for company ABC, you added C + CE + AR + MS to get Liquid Assets. Please explain!
There are two ways to calculate quick ratio:
QR = (Current Assets - Inventories - Prepaid Expenses) / Current Liabilities.
QR = (Cash + Cash Equivalents + Marketable Securities + Accounts Receivable) / Current Liabilities.
The first quick ratio formula emphasizes the items that can’t be quickly turned into cash. Inventories can be sold off for cash, but it might take more than 90 days. To attempt to sell them off rapidly, you might have to accept a large discount to their market value. Prepaid expenses are items like prepaid insurance and prepaid subscriptions. These aren’t included in how to calculate quick ratio because they can’t be used to pay current liabilities. Theoretically, you could attempt to cancel them and receive a refund, but it can take a long time and you will probably not receive the full value of the prepaid.
The second quick ratio formula is equivalent to the first, but it concentrates on items that can be quickly turned into cash. Accounts receivable might be problematic to the extent you have accounts that will be delinquent, unpaid or have due dates longer than 90 days. However, in most situations, you should be able to collect the money due you within 90 days unless you have historical evidence to the contrary.
Same question
Same question I have
simple and good
Thanks ! Nice & easy! ❤
Kindly do more videos on Accounting Ratios we're having problems in schools
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Thanks for the analysis! 🔍 Need some advice: 🙏 I have these words 🤨. (behave today finger ski upon boy assault summer exhaust beauty stereo over). What should I do with this? 🤷♂️
Thank you for your help, i finally understood it~
Thanks for your help me teacher 🤝👍💪👏
Maybe I missed something (it's morning and I haven't had my coffee? 😁 )... If inventory is not considered a liquid asset and normally isn't included in the Quick Ratio, why is it used in the quick ratio in this example?
What is the major ratios for debt managment for government sector were they use cash basis not accrual basis
why do not we add inventory and prepaid in the current asset when we calculate the current asset ratio?
bro you are the best ❤
how to know when you will add all the liquid assets bcs in the first example, you subtracted all the liquid assest
Sir how to calculate liquid ratio when current assets and current liabilities are not given
But here are given working capital, current ratio and stock
Yes, same thing I was wondering some companies don't give the current assets or current liabilities.
Working capital is current assets minus the current liablities. Current assets is
1. Total assets minus fixed assets
(or)
2. Liquid assets + closing stock + prepaid expense.
Ideal current ratio is 2:1
Ideal quick ratio is 1:1
These ratios are mostly expressed as pure ratio
Good video
Thank you so much😭😭❤❤I learnt a lot from this video.
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how to know the amount of assets and liabilities using the current and quick ratio?
Sir if there is working capital so what will do
Bro teaches everything
In the last question how can we tell which is a current asset and a liquid asset?
But why did you subtract the first liquid assets and summed up the second
Hi, i ask the current ratio and quick ratio is Liquidity Ratios right?
Organic chemistry tutor’s fan hit a like
Why are we subtracting Prepaid Expense, and not only Inventory... i thought we only subtract inventory only on Acid test ratio?
Thank u so much
This helped me alot💕
This is so much helpful! But what if the liabilities is 0?
I don't think its possible to not have any liabilities. there will always be some liability
u shall broketh math
if inventory is not a liquid asset, why it is included?
Aren't lnventories same as current assets?
Super helpful, thanks.
hi
my teacher also told me that there is in profitability ratio called acid test ratio
can you make a video for it explaining why it is considered one of the profitability ratios and what is the equation of it plsssss
i have an exam after 1 week
i would really appreciate it
First one form India💕💕💕💕
Nice video
Current Ratio deals with time and it is asking are making money today?
The Quick Ratio is asking are making money? If not, do you have the assets to pay for the company debt?
Is inventory not a current asst since it can be converted into cash within one year?
It is but not a liquid asset as it takes time to sell inventory.
Quick ratio and acid test ratio same?
Very nice
Thank you
the 0.5 tho dont you have to round it off to one?
My new hero!!
what if cr is 10 or more?
?
Thanks
Inventory is current asset right?
I think 500 doesn't include the inventory of 50
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For us the acid test ratio is cash + temporary investments + net receivables/current liabilities.
its getting silly now, how do you know so much. I was here for A Level chemistry, maths and I'm here again at university for economics and accounting, like howwww
Where are the other ratios
Thank you!
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Interesting!
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