Katelynn's Report

Katelynn's Report

(US Market)


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Quick Ratio

Quick ratio measures the ability of a company to meet its short term liabilities. It is calculated as (Current Assets - Inventories)/Current Liabilities (or alternatively, (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities). Quick ratio is a more stringent measure of the liquidity of a company than current ratio, which does not remove inventories from the numerator. The higher the quick ratio, the better the liquidity of a company. In Katelynn's Report, higher quick ratio represents better performance (i.e. higher quantile ranking).

Generally quick ratio higher than 1 is a more preferred financial condition, irrespective of the sector or industry of a business. There is no significant differences in the distribution of quick ratio in different sectors and industries. At whole market level, 69%(as of 2017-01-27) companies have quick ratio higher than 1 (see figure below). Nevertheless, quick ratio less than 1 should not be a big concern for companies who can quickly turn inventories into cash or cash equivalent. Note that quick ratio makes several assumptions. 1) accounts receivable are readily available for collection. 2) no working capital is needed to maintain operations. These assumptions can not always be met for some companies.

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