Question

Windswept, Inc. 2017 Income Statement ($ in millions)

Net sales $9,810
Cost of goods sold 7,960
Depreciation 485
Earnings before interest and taxes $1,365
Interest paid 112
Taxable income $1,253
Taxes 439
Net income $814

Windswept, Inc. 2016 and 2017 Balance Sheets ($ in millions)

2016 2017 2016 2017
Cash $270 $300 Accounts payable $1,530 $1,485
Accounts rec. 1,080 980 Long-term debt 1,140 1,340
Inventory 1,930 1,755 Common stock 3,420 3,370
Total $3,280 $3,035 Retained earnings 680 930
Net fixed assets 3,490 4,090
Total assets $6,770 $7,125 Total liab. $7200 $7585

Required:
What is the quick ratio for 2017?

Answer 1

Quick Ratio - 2017 = 0.8619 rounded off to 0.86

Step-by-step explanation:

The quick ratio which is also known as the acid test ratio is a measure to assess the liquidity position of a company. The liquidity condition means the ability of a company to pay off its short term obligations using its short term or current assets. The quick ratio measures the ability of a company to pay off these obligations using the company's most liquid assets and that is why we exclude the value of inventory when calculating the quick ratio.

The formula for quick ratio is,

Quick Ratio = (Current assets - Inventory) / Current Liabilities

Quick Ratio - 2017 = (3035 - 1755) / 1485

Quick Ratio - 2017 = 0.8619 rounded off to 0.86