Apple Inc.
(in millions)
Dell, Inc.
(in millions)
Current assets:
Cash and cash equivalents $11,261 $13,913
Short-term investments 14,359 452
Accounts receivable 11,560 10,136
Inventories 1,051 1,301
Other current assets* 3,447 3,219
Total current assets $41,678 $29,021
Current liabilities:
Accounts payable $17,738 $15,474
Accrued and other current liabilities 2,984 4,009
Total current liabilities $20,722 $19,483
*These represent prepaid expense and other nonquick current assets
a. Determine the quick ratio for both companies.
b. Interpret the quick ratio difference between the two companies.
Answer:
a.
Quick Ratio
Quick Ratio =
Apple Inc.
1.8
Quick Assets
Current Liabilities
Dell, Inc.
1.3
Apple Inc. (in millions):
Quick Ratio = $11,261 + $14,359 + $11,560 = $20,722
1.8
Dell, Inc. (in millions):
Quick Ratio = $13,913 + $452 + $10,136
$19,483 = 1.3
b. It is clear that Apple Inc.’s short-term liquidity is stronger than Dell’s. Apple’s quick ratio is 38% [(1.8 – 1.3) ÷ 1.3] higher. Apple has a much stronger relative cash and short-term investment position than does Dell. Apple’s cash, accounts receivable, and short-term investments are over 89% of total current assets (180% of current liabilities), compared to Dell’s 84% of total current assets 130% of current liabilities). In addition, Dell’s relative accounts payable position is larger than Apple’s, indicating the possibility that Dell has longer supplier payment terms than does Apple. A quick ratio of 1.8 for Apple suggests ample flexibility to make strategic investments with its excess cash, while a quick ratio of 1.3 for Dell indicates an efficient, but tight, quick asset management policy.