Strategic Management: Formulation and Implementation

Quick (acid-test) Ratio

The acid-test ratio is similar to the current ratio except that it excludes inventory. It is calculated as follows:

Quick ratio = (Current assets - inventories)
Current liabilities

For Jimco, this ratio is

$11,700,000 = 1.17 times
$10,000,000

industry average = 0.61 times

A quick ratio of 1.0 or greater is occasionally recommended, but, as with the current ratio, an acceptable value depends largely on the industry. v

Efficiency Ratios

Efficiency ratios are used to measure the speed with which various accounts are converted into sales or cash. Some of these are: inventory turnover, average collection period, fixed asset turnover, total asset turnover.