Based on the data for Privett Company, what is the quick ratio,
Chapter1: Financial Statements And Business Decisions
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![**Financial Statement Analysis: Understanding Quick Ratios**
Welcome to our educational section on financial analysis. In this segment, we will analyze the financial data of Privett Company to calculate its quick ratio, an important measure of a company's short-term liquidity.
### Financial Data for Privett Company
Here is the list of Privett Company's financial variables:
- **Accounts payable:** $30,000
- **Accounts receivable:** $35,000
- **Accrued liabilities:** $7,000
- **Cash:** $25,000
- **Intangible assets:** $40,000
- **Inventory:** $72,000
- **Long-term investments:** $100,000
- **Long-term liabilities:** $75,000
- **Marketable securities:** $36,000
- **Notes payable (short-term):** $20,000
- **Property, plant, and equipment:** $400,000
- **Prepaid expenses:** $2,000
### Quick Ratio Calculation
The **quick ratio** (also known as the acid-test ratio) is a measure of a company’s capacity to pay its current liabilities without needing to sell its inventory or obtain additional financing. It is calculated as follows:
\[ \text{Quick Ratio} = \frac{\text{Quick Assets}}{\text{Current Liabilities}} \]
Where quick assets are:
- Cash
- Marketable securities
- Accounts receivable
### Calculation Steps
**Step 1: Summing Quick Assets:**
- Cash: $25,000
- Marketable securities: $36,000
- Accounts receivable: $35,000
\[ \text{Quick Assets} = \$25,000 + \$36,000 + \$35,000 = \$96,000 \]
**Step 2: Identifying Current Liabilities:**
- Accounts payable: $30,000
- Accrued liabilities: $7,000
- Notes payable (short-term): $20,000
\[ \text{Current Liabilities} = \$30,000 + \$7,000 + \$20,000 = \$57,000 \]
**Step 3: Calculating the Quick Ratio:**
\[ \text{Quick Ratio} = \frac{96,000}{57,000} \approx 1.7 \]
### Educational Question
Based on the data for Privett Company, what is the quick ratio, rounded to](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F89bcb40f-588a-48ee-8c42-2ab87d9ea24e%2F21778345-7c3f-49d8-9fee-6b84fabbb928%2Fawmed8b.jpeg&w=3840&q=75)
Transcribed Image Text:**Financial Statement Analysis: Understanding Quick Ratios**
Welcome to our educational section on financial analysis. In this segment, we will analyze the financial data of Privett Company to calculate its quick ratio, an important measure of a company's short-term liquidity.
### Financial Data for Privett Company
Here is the list of Privett Company's financial variables:
- **Accounts payable:** $30,000
- **Accounts receivable:** $35,000
- **Accrued liabilities:** $7,000
- **Cash:** $25,000
- **Intangible assets:** $40,000
- **Inventory:** $72,000
- **Long-term investments:** $100,000
- **Long-term liabilities:** $75,000
- **Marketable securities:** $36,000
- **Notes payable (short-term):** $20,000
- **Property, plant, and equipment:** $400,000
- **Prepaid expenses:** $2,000
### Quick Ratio Calculation
The **quick ratio** (also known as the acid-test ratio) is a measure of a company’s capacity to pay its current liabilities without needing to sell its inventory or obtain additional financing. It is calculated as follows:
\[ \text{Quick Ratio} = \frac{\text{Quick Assets}}{\text{Current Liabilities}} \]
Where quick assets are:
- Cash
- Marketable securities
- Accounts receivable
### Calculation Steps
**Step 1: Summing Quick Assets:**
- Cash: $25,000
- Marketable securities: $36,000
- Accounts receivable: $35,000
\[ \text{Quick Assets} = \$25,000 + \$36,000 + \$35,000 = \$96,000 \]
**Step 2: Identifying Current Liabilities:**
- Accounts payable: $30,000
- Accrued liabilities: $7,000
- Notes payable (short-term): $20,000
\[ \text{Current Liabilities} = \$30,000 + \$7,000 + \$20,000 = \$57,000 \]
**Step 3: Calculating the Quick Ratio:**
\[ \text{Quick Ratio} = \frac{96,000}{57,000} \approx 1.7 \]
### Educational Question
Based on the data for Privett Company, what is the quick ratio, rounded to
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