Q.What is Quick Ratio ?

Quick ratio compares a firm's quick (near-cash) assets to its current liabilities and shows immediate short-term solvency; its standard norm is 1 : 1. Meaning The quick ratio, also known as the liquid ratio or acid-test ratio, is a liquidity ratio that expresses the relationship between quick assets and current liabilities. It measures whether a business can pay off its short-term obligations without having to sell its stock. Formula $\text{Quick Ratio} = \frac{\text{Quick Assets}}{\text{Current Liabilities}}$ where Quick Assets = Current Assets − Inventory (Closing Stock) − Prepaid Expenses. Inventory is excluded because it takes time to convert into cash, and prepaid expenses are excluded because they cannot be realised in cash. Ideal norm A quick ratio of 1 : 1 is considered satisfactory — it indicates the firm has just enough liquid assets to cover its current liabilities. In the Tamil Nadu HSC Clas …