Quick ratio

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rishika agarwal (Querist)
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01 August 2014 sir, why do we deduct stock from current asset? wt about debtors & creditors? can u pls explain me. thanku..

Nikhil Kaushik

Nikhil Kaushik (Expert)
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02 August 2014 it is because the assumption is that the stock cannot be converted into cash quickly whereas debtors can be. in real world this assumption may not hold good

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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02 August 2014 Its because of stage of operating cycle stage. Raw materials will be converted into finished good. Then it will be sold and then comes the question of realization from debtors. Stock is at a very early stage of operating cycle whereas debtors is at a final stage of operating cycle. For this reason stock is excluded from current assets for calculation of Quick Ratio.

Vishnu Saboo

Vishnu Saboo (Expert)
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02 August 2014 thanks to both expert NKA and Sanjay ji. i was bit confused abt this concept.

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