On 7/21/00 2:41:20 PM, Jimmie Wilkins wrote:
>Acid-Test Ratio
>
>
>
>Provided by the OREGON NETWORK
>OF BIZCENTERS
>
>Visit One of the 20 Oregon
>BizCenters On-Line at
>WWW.BIZCENTER.ORG
>
>The acid-test (quick) ratio
>measures the capability of
>your business, using liquid
>assets, to meet its short-term
>debts. The ratio will change
>constantly so it is important
>monitor the value of the ratio
>on a monthly basis.
>
>Here is how to calculate the
>acid-test (quick) ratio for
>your business.
>
>$
> A.
>Determine the value of all
>liquid assets from a current
>balance sheet.
>
>Include cash, marketable
>securities, and all
>receivables.
>
>
>
>$ 459,000
> B.
>Look up current liabilities
>from a current balance sheet
>
>$
> C.
>Calculate your acid-test
>ratio: Divide "A" by "B."
>
>Express your answer in the
>format of $x.xx
>
>
>
>
> D.
>Look up an industry standard
>ratio from a source such as
>RMA (Robert Morris
>Associates).
>
> E.
>Is your ratio higher or lower
>than the industry standard?
>
>
>
> If you are higher:
>
>
>
>A probable favorable indicator
>of your ability to pay
>short-term debts.
>Normally small business owners
>prefer ratio to be $1.00 or
>higher.
>A very high ratio could
>indicate poor receivables or
>excess cash reserves.
>
>
>
> If you are lower:
>
>
>
>May experience problems paying
>short-term debts.
>Consider liquidating some
>inventory to generate cash.
>Investigate refinancing
>short-term debt with long-term
>debt.
>Consider a sale/leaseback of
>fixed assets to generate cash.
>
>
>Based on your analysis of your
>acid-test ratio, note three
>actions to take:
>
>1.
>
>2.
>
>3. I'm gonna hire a CPA.
>
>
>© QA , Inc., 2000
>
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>
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