Quick ratio
This query is : Resolved
rishika agarwal
(Querist)
01 August 2014
sir, why do we deduct stock from current asset? wt about debtors & creditors? can u pls explain me. thanku..
Nikhil Kaushik
(Expert)
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
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
(Expert)
02 August 2014
thanks to both expert NKA and Sanjay ji. i was bit confused abt this concept.
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