The quick or acid test ratio is calculated by dividing quick assets by current

The quick or acid test ratio is calculated by

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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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52 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.
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