Using ratios to analyse companies

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15. Quick ratio (acid test)

Definition: Current assets minus stocks divided by current liabilities

Significance:

A more drastic version of the current ratio, this shows whether the company could pay its debts if its creditors were hammering at the door AND it had no time to sell any of its stock.

Calculation:

Information taken from the balance sheet.

Example

Looking at the figures in M&S's balance sheet, the calculation is:

Quick ratio calculator Current assets £  m Stocks £  m Current liabilities £  m   Quick ratio:

Yardstick:

The yardstick is the same for current ratio.

1. Why bother with ratios? 2. A word of warning 3. The P&L and the balance sheet 4. Grouping the ratios 5. Profit margin 6. Return on capital employed (ROCE) 7. Sales as a multiple of capital employed 8. Stockturn 9. Debt collection 10. Payment of trade creditors 11. Cash-to-cash cycle 12. Gearing 13. Interest cover 14. Current ratio 15. Quick ratio (acid test) 16. Earnings ratios 17. Dividend ratios 18. Other ratios 19. Sources of information 20. Conclusion

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