The quick or acid test ratio is calculated by

The quick or acid - test ratio is calculated by dividing
quick assets by current liabilities. Quick assets can be rapidly converted to cash, and include cash, accounts
receivable, and short - term investments or marketable securities. Quick assets do not include inventory, prepaid
expenses or supplies which may take several months to consume or convert to cash.
Quick Assets
Current Liabilities
Current Assets
Current Liabilities
A current or quick ratio below one means a company may be unable to pay its debts over the next year.
However, quick and current ratios vary significantly by industry. For instance, auto companies maintain high
current ratios to avoid bankruptcy during the next recession. However, a high current ratio are wasteful for
retailers with better investment opportunities. Walmart’s current ratio has been under one each of the last three
years. It safely maintains low current ratios by selling inventory faster than payables come due.
Given Apple’s classified balance sheet, it is possible to calculate its quick and current ratios.
To get Apple’s current ratio of 1.5, take its current assets of $57,653 million and divide by current
liabilities of $38,542 million. To calculate Apple’s quick or acid - test ratio, add cash, short term investments, and
accounts receivable and divide this total by current liabilities. ($10,746 + 18,383 + 10,930) / $40,059 equals 1.04.
Apple Inc.
Simplified Balance Sheet
9/29/2012
(in millions $)
Current Assets: Current Liabilities:
Cash and Equivalents 10,746 Accounts Payable 21,175
Short-Term Marketable Securities 18,383 Accrued Expenses 11,414
Accounts Receivable 10,930 Deferred (Unearned) Revenue 5,953
Inventories 791 Total Current Liabilities 38,542
Deferred Tax Assets 2,583 Non-Current Liabilities 19,312
Other Current Assets 14,220 Total Liabilities 57,854
Total Current Assets 57,653
Long-Term Marketable Securities 92,122 Shareholders' Equity:
Property, Plant & Equipment, Net 15,452 Common Stock 16,422
Intangible Assets, Net 5,359 Retained Earnings 101,788
Other Assets 5,478 Total Shareholders' Equity 118,210
Total Assets 176,064 Total Liabilities & Equity 176,064
AKA: The quick ratio
is also referred to as
the acid - test ratio.
= Current Ratio
= Quick Ratio

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To calculate the current and quick ratios for While higher is generally better for current and quick ratios,
if the ratio is too high it may indicate a company is not efficiently using its current assets. Perhaps it has too much
invested in inventory or it isn’t collecting its receivables in a timely fashion.
According to Reuters, the average ROA for non - alcoholic beverage companies was 5.1%, while ROA for software
companies over the last five years was 14.8%.
a
To calculate Pepsi Co’s 2011 return on assets, take its $6,443 million profit and divide by average total
assets. Average total assets is calculated by taking this year’s total assets of $72,882 million plus last year’s total
assets of $68,153 million and dividing by two. Ultimately, Pepsi’s return on assets is 9.1% = $6,443 / (($68,153+
$72,882)/2). In comparison, Coca Cola’s return on assets for 2011 is 11.2% = $8,584 / (($79,974+$72,921)/2).
Both companies were more profitable than the average non - alcoholic beverage company, but Pepsi’s ROA wasn’t
as strong as Coke’s.