# Quick Ratio | Super Quick Ratio | Formulae | Significance

## Quick Ratio | Acid Test Ratio | Liquid Ratio

Quick ratio may be defined as the relationship between quick / liquid assets and current or liquid liabilities. Liquid assets means an asset is converted into cash very easily without any loss of value. The following formulae were used to calculate Quick Ratio.

### Formula to find out Quick Ratio

Quick Ratio = Quick or Liquid Assets /Current Liabilities

or

Quick Ratio = Quick or  Liquid Assets / Quick or Liquid Liabilities

Liquid Assets = Current Assets — Inventories — Prepaid Expenses

The term inventories includes stock of raw materials, work in progress and finished goods.

Liquid Liabilities = Current Liabilities — Bank Overdraft

### Significance of Quick Ratio

As a rule of thumb, the standard quick ratio is 1:1. It means that the value of current assets should be equal to current liabilities. If so, the company can meet its short term obligations. Besides, the standard ratio of 1:1 can not be used blindly.

An analyst should be very careful while using quick ratio. The reason is that all the debtors cannot be realized immediately to meet its current obligations. Sometimes, a company maintains low quick ratio i.e. below 1:1 but the same company has good liquidity position if it has fast moving inventories.

## Super Quick Ratio

It is otherwise called as Absolute Liquid Ratio or Cash Ratio or Cash Position Ratio. This ratio is calculated when liquidity is highly restricted in terms of cash and cash equivalents. The following formulae are used to calculate Super Quick Ratio.

### Formulae to find out Super quick Ratio

Super Quick Ratio = Super Quick Assets / Current Liabilities

or

Super Quick Ratio =  Super Quick Assets / Liquid Liabilities

or

Super Quick Ratio = (Cash +  Marketable Securities) / Liquid Liabilities

or

Super Quick Ratio = Absolute Liquid Assets / Current Liabilities

or

Super Quick Ratio = (Cash + Bank + Short Term Securities) / Current Liabilities

Super Quick Assets = Cash in Hand + Cash at Bank + Easily Marketable Securities or Temporary Investments

### Significance of Super Quick Ratio

The standard ratio of Super Quick Ratio is 0.5:1. It ensures most liquidity of the business concern. Hence, there is a need of giving much importance on only cash and marketable securities.

### Related Post

Zero based budgeting | Stages | Advantages | Disadvantages Understanding Zero based budgeting Zero based budgeting is used as a managerial tool to control the costs. It got popularity since the early 1970's. ...
Yardsticks for ratio analysis An efficiency of an individual can be assessed only by fixing the standard. If not so, the concerned individual has no option of knowing his level of ...
Working capital | Operating Cycle or Circular Flow Concept Working Capital Working capital refers to a part of sources of funds of a business concern used for financing short term purposes or current assets s...
Working capital | Meaning | Needs | Balance Sheet Concept What is working capital? Working capital is the amount used to meet the day to day operation activities of a business. In the broad sense, the term w...
Who is a Management Accountant | Role in Management The management accounting system provides highly useful economic and financial data to the management. A channel is used to transmit the information e...
Who is a Budget Officer? | What are his Duties or Functions? Who is a Budget Officer? Budget Officer is a head of Budgetary Control Organization. He/she may be otherwise called as the Budget Director or Budget ...