What is the difference between the current ratio and the cash ratio?

The quick ratio, also known as the "acid-test ratio", is the ratio of liquid assets to current liabilities. It is a measure of the ability of a company's current assets to be immediately realized to repay current liabilities. Quick Ratio Calculation Formula The quick ratio is the ratio of a company's liquid assets to current liabilities.

Liquid assets include monetary funds, short-term investments, notes receivable, accounts receivable, and other receivables. Inventories, prepaid accounts and amortized expenses should not be included in current assets. Quick Ratio = (Current Assets - Inventories - Prepaid Accounts - Amortized Expenses) Total Current Liabilities 100% The level of the quick ratio can directly reflect the strength of the company's short-term solvency, which is a supplement to the current ratio, and is more intuitive and credible than the current ratio.

If the current ratio is high, but the liquidity of current assets is low, the short-term solvency of the enterprise is still not high. In the current assets, there is a value in the market, which can be converted into cash, accounts receivable, notes receivable, prepaid accounts and other items, which can be realized in a short period of time, while inventory, amortized expenses and other items take a long time to realize, especially the inventory is likely to be overstocked, unsalable, defective, cold back, etc., its liquidity is poor, so the current ratio of higher enterprises, not necessarily the ability to repay short-term debts is very strong, and the quick ratio avoids this situation. The quick ratio should generally be kept above 100 Generally speaking, the ratio of quick ratio to current ratio is around 1 to 1.

Cash Ratio = (Monetary Funds + Valuable**) Current Liabilities * 100%.

The cash ratio measures the liquidity of a company's assets by calculating the ratio of the company's total cash and cash equivalent assets to its current current liabilities.

It excludes inventories and receivables, i.e., the cash ratio measures only the most liquid items of all assets relative to current liabilities, so it is also the most conservative of the three liquidity ratios.

The cash ratio is also known as the liquidity ratio or cash asset ratio.

This formula reflects the company's ability to pay its current debt without relying on inventory sales and receivables.

In addition, it is important to note that the cash ratio does not take into account the time of cash receipt and cash payment.

The cash ratio is the balance of liquid assets after deducting accounts receivable. The amount of liquid assets after deducting accounts receivable can best reflect the ability of the enterprise to directly repay its current liabilities. A cash ratio of more than 20% is generally considered to be preferred.

However, if this ratio is too high, it means that the company's current liabilities are not being used rationally, and the profitability of cash-like assets is low, and the amount of such assets is too high, which will lead to an increase in the opportunity cost of the company.

Summary. Is the cash ratio current ratio = current assets current liabilities quick ratio = liquid assets current liabilities cash ratio = monetary funds current liabilities some of the current assets and liquid assets cannot be used to repay current liabilities, such as raw materials for production, etc., and the denominator of the cash ratio is monetary funds and trading financial assets and other assets that can be realized at any time, and these assets can be used to repay current liabilities at any time, so the cash ratio is the most reliable indicator.

Compare the connection and difference between the current ratio, quick ratio and cash ratio?

It is the cash ratio current ratio = current assets current liabilities quick ratio = liquid assets current liabilities cash ratio = monetary funds current liabilities Some of the current assets and quick response assets cannot be used to repay current liabilities, such as raw materials used in production, etc., and the denominator of the cash tolerance ratio is assets that can be realized at any time, such as monetary funds and trading financial assets, which can be used to repay current liabilities at any time, so the cash ratio is the most reliable and wise indication.

The significance of the current ratio is to reveal the degree of protection of current assets for current liabilities and examine the safety of short-term debt repayment.

The quick ratio excludes assets with weak liquidity and instability such as inventories, and can more accurately and reliably evaluate the liquidity of an enterprise's assets and its ability to repay short-term liabilities than the current ratio.

The current ratio is the current assets divided by the current liabilities, which indicates the ability of the current assets to repay the current liabilities, while the quick ratio is the current assets minus the inventory part and then divided by the current liabilities, because the inventory is usually not cashed out at any time, so the quick ratio indicates whether the company has the ability to repay the current liabilities at any time.

How to take advantage of it".

Liquidity ratio. or "Quick Ratio."

to judge the company.

Short-term solvency.

What should I pay attention to in the process of judging and analyzing?

Both the current ratio and quick ratio measure a company's short-term solvency.

Current Ratio = Current Assets.

Current liabilities. Quick Ratio =

Liquid assets. Current liabilities.

"Liquid assets" can be found directly on the company's balance sheet. in liquid assets.

Monetary funds. Trading financial assets and various receivables and prepayments have strong liquidity, which are called liquid assets; Current assets other than liquid assets, including inventories, expenses to be amortized, and those due within one year.

Non-current assets.

etc., which are called non-liquid assets.

The current ratio is an indicator that reflects the company's current assets to repay short-term debts, and the larger the current ratio, the stronger the short-term solvency. If a company's current ratio increases year by year, it means that its short-term solvency tends to improve and strengthen, and conversely, it indicates that its short-term solvency tends to decrease and its operating risk increases. The value of the current ratio is not as large as possible, and if the current ratio is too large, it means that the company has too much money stuck in current assets, and the profitability of current assets is generally poor.

For a long time, it was thought that a reasonable current ratio of around 2 for a production company would be better. This is because the amount of inventory with poor liquidity in current assets accounts for about half of current assets, and the remaining liquid assets with good liquidity must be at least equal to current liabilities to ensure the company's ability to repay debts in the short term. There has been a downward trend in current ratios in recent years, with many successful companies having a current ratio below 2.

The quick ratio is an indicator that reflects the relationship between the liquid assets that are easily realized in the company's current assets and the ratio of current liabilities, which can measure the authenticity of the current ratio and more accurately reflect the short-term solvency of a company than the current ratio. The quick ratio is generally 1, but it cannot be lower.

The larger the current ratio and quick ratio, the stronger the short-term solvency, but in the actual analysis, the characteristics of the industry and the actual situation of the company should also be properly considered.

1.Similarities: The denominator of both the current ratio and the quick ratio are current liabilities; Both formulas are used to analyze the short-term solvency of a company.

2.Differences: The significance of the current ratio is to reveal the degree of protection of current assets for current liabilities and examine the safety of short-term debt repayment, and the quick ratio is used to measure the ability of current assets of an enterprise to immediately repay due debts; The quick ratio excludes assets with weak liquidity and instability such as inventories, and can more accurately and reliably evaluate the liquidity of an enterprise's assets and its ability to repay short-term liabilities than the current ratio.

1. Current ratio = total current assets and total current liabilities * 100%.

2. Quick ratio = liquid assets and current liabilities.

Wherein: liquid assets = current assets - inventories.

Or: liquid assets = current assets - inventories - prepaid accounts - expenses to be amortized.

When calculating the quick ratio, inventories are deducted from current assets because inventories are slower to realise in current assets, and some inventories may be unsalable and cannot be realised.

1. Current ratio = current assets and current liabilities x 100%.

2. Quick ratio = quick assets and current liabilities x 100%.

3. Current assets refer to assets that can be realized or consumed within one year or more than one year of a business cycle, including cash and various deposits of the enterprise itself, short-term loans, short-term investments, receivables and prepayments, etc.

4. The current ratio is the ratio of current assets to current liabilities, which is used to measure the ability of current assets of an enterprise to be turned into cash to repay liabilities before the maturity of short-term debts.

5. Current liabilities refer to debts that will be repaid within one year or more than one business cycle, including short-term loans, notes payable, accounts payable, wages payable, taxes payable, profits payable, other payables, withholding expenses, etc.

6. The quick ratio is a supplement to the current ratio, which is to calculate the actual short-term debt repayment ability of the enterprise.

The quick ratio and current ratio of a listed company are two important indicators to judge the company's short-term solvency, both of which refer to the company's ability to cash out in a short period of time to repay its debts.

However, there are differences between the two.

1.The current ratio refers to the ratio of a company's current assets to current liabilities, and it is generally appropriate to maintain it at 2:1. The quick ratio refers to the ratio of the company's liquid assets to current liabilities, which is generally more appropriate to maintain at 1:1.

2.What is a liquid asset?

Liquid assets have stronger liquidity than current assets, which refers to the highly realizable assets at the disposal of the company after excluding inventory, accounts receivable and other illiquid assets.

In other words, liquid assets are more flexible and more solvent than liquid assets.

3.Calculation of the quick ratio.

The quick ratio in the balance sheet involved in the accounting accounts mainly include current assets, current liabilities, inventory, accounts receivable, etc., the specific formula for calculating the mountain lease is as follows:

Quick Ratio = (Current Assets - Inventories - Accounts Receivable) Current Liabilities.

Inventory and accounts receivable items are subtracted from the current ratio.