A quick ratio of 1.5 indicates the company has how much liquid assets per dollar of current liabilities?

• A. $1.50 per $1 of current liabilities
• B. $0.50 per $1
• C. $1.00 per $1
• D. $2.00 per $1

Answer: (A)

Quick ratio shows how well a company can cover its current liabilities with its most liquid assets. It’s calculated by dividing liquid assets by current liabilities. A quick ratio of 1.5 means there are 1.5 dollars of liquid assets for every 1 dollar of current liabilities, so the liquid assets per dollar of current liabilities is $1.50. Quick assets typically include cash, marketable securities, and accounts receivable, excluding inventory. For example, if current liabilities are $100,000, liquid assets would be $150,000. The option that states $1.50 per $1 is the correct representation.