The quick ratio is a liquidity ratio used to measure the liquidity position of a company, project, investment centre or profit centre. The quick ratio differs from other liquidity ratios in that it only considers cash and cash equivalent items for calculation and interpretation.
Even if this ratio is favourable, it is insufficient to draw a conclusion about the company's financial health. Although the ratio is low, it does not imply that the company is about to go out of business. They may be able to support their activity with funds from other sources.
It's pointless to compare the ratios across different industries. Some businesses necessitate a large amount of current assets, while others do not. As a result, comparing the ratio will yield no results.
For the retail store and dinner market, the merchandise will be converted to cash quickly and efficiently. As a result, omitting them from the ratio will not provide a complete picture of such businesses.
This ratio examines the company's ability to create cash to cover current liabilities, but it contains no information about cash flow generation.
Other current assets, such as inventories, may also take longer to convert to cash. Accounts receivable, for example, will be difficult to recover during a slump.