Reasons Quick Ratio Is Important To Investors.
Quick Ratio What do investors look out for when assessing a potential investment opportunity in a company? When investors consider a business to invest in, they are mostly interested in the profitability of that business. But they are also interested in the solvency , efficiency and capital structure of the business. Why would investors be interested in the solvency or liquidity of a business they desire to invest in? Because it’s important to know if the business under consideration would have the financial capacity to meet its current maturing liabilities. It’s worthy of note that businesses carry out transactions on both credit and cash bases. The quick ratio (or acid test ratio) is used to test the solvency or liquidity of a business through the ratio analysis of its financial statements. What is quick ratio or acid test ratio? The quick ratio is a solvency test that compares the total current assets of a business excluding stock, to its total current liabilities. The goal of quick...