Dec. 31, 2014 Dec. 31, 2013
Cash $1,000 $1,140
Temporary investments 1,200 1,400
Accounts receivable 800 910
Inventory 2,200 2,300
Accounts payable 1,875 2,300
a. Compute the quick ratio for December 31, 2014 and 2013.
b. Interpret the company’s quick ratio. Is the quick ratio improving or declining?
Answer:
a.
December 31, 2014
Quick Ratio = Quick Assets ÷ Current Liabilities
Quick Ratio = ($1,000 + $1,200 + $800) ÷ $1,875
Quick Ratio = 1.6
December 31, 2013
Quick Ratio = Quick Assets ÷ Current Liabilities
Quick Ratio = ($1,140 + $1,400 + $910) ÷ $2,300
Quick Ratio = 1.5
b. The quick ratio of Adieu Company has improved from 1.5 in 2013 to 1.6 in 2014. This increase is the result of a small decrease in the three types of quick assets (cash, temporary investments, and accounts receivable) compared to the larger decrease in the current liability, accounts payable.