The current ratio of a business is 3:1 and its working capital 400000 ...
**Calculation of Quick Ratio**
The quick ratio, also known as the acid-test ratio, is a financial ratio that measures the liquidity of a business. It is a stricter measure of liquidity compared to the current ratio as it excludes inventory from the calculation. The quick ratio is calculated using the formula:
Quick Ratio = (Current Assets - Inventory) / Current Liabilities
To calculate the quick ratio, we need to know the values of current assets, inventory, and current liabilities.
Given:
- Current Ratio = 3:1
- Working Capital = $400,000
- Stock = $250,000
**Step 1: Calculation of Current Assets**
The current assets of a business include cash, accounts receivable, inventory, and other short-term assets. Since the stock is given separately, we need to exclude it from the calculation of current assets.
Current Assets = Working Capital + Stock
Current Assets = $400,000 + $250,000
Current Assets = $650,000
**Step 2: Calculation of Current Liabilities**
Current liabilities include short-term obligations such as accounts payable, accrued expenses, and short-term debt.
Since we are not given the value of current liabilities directly, we cannot calculate the quick ratio at this point. We can only determine the quick ratio if the value of current liabilities is provided.
Once the value of current liabilities is known, we can proceed to the next step.
**Step 3: Calculation of Quick Ratio**
Using the formula for the quick ratio:
Quick Ratio = (Current Assets - Inventory) / Current Liabilities
We substitute the given values:
Quick Ratio = ($650,000 - $250,000) / Current Liabilities
However, since the value of current liabilities is not given, we cannot calculate the quick ratio at this time.
In order to calculate the quick ratio, we need the value of current liabilities. Once provided, we can substitute the values into the formula and determine the quick ratio.