Question 11.8: Quick Ratio Sayer Company reported the following current ass...

Financial Accounting

Quick Ratio

Sayer Company reported the following current assets and current liabilities for the years ended December 31, 20Y9 and 20Y8:

	20Y9	20Y8
Cash	$1,250	$1,000
Temporary investments	1,925	1,650
Accounts receivable	1,775	1,350
Inventory	1,900	1,700
Accounts payable	2,750	2,500

a. Compute the quick ratio for 20Y9 and 20Y8.
b. Interpret the company’s quick ratio across the two time periods.

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a. December 31, 20Y9:

Quick Ratio = Quick Assets ÷ Current Liabilities

= ($1,250 + $1,925 + $1,775) ÷ $2,750
= 1.8

December 31, 20Y8:
Quick Ratio = Quick Assets ÷ Current Liabilities

= ($1,000 + $1,650 + $1,350) ÷ $2,500
= 1.6

b. The quick ratio of Sayer Company has improved from 1.6 in 20Y8 to 1.8 in 20Y9.This increase is the result of a large increase in the three types of quick assets (cash, temporary investments, and accounts receivable) compared to a relatively smaller increase in the current liability, accounts payable.

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