Current Ratio = $643.5m ÷ $288.0m = 2.23 times • The firm had $2.23 in current assets for every $1 it owed in current liability. It is better than peer group average of $1.80. Acid Test (Quick) Ratio (1 of 2) • Acid-Test (Quick) Ratio excludes the inventory from current assets as inventory may not be very liquid.
Acid-Test Current Assets Inventory
= (or Quick) Ratio Current Liabilities Acid Test (Quick) Ratio (2 of 2) • What is the quick ratio for Boswell? • Acid Test (or Quick) Ratio = ($643.5m $378m) ÷ ($288.0m) = 0.92 times • The firm has only $0.92 in current assets (less inventory) to cover $1 in current liabilities. This ratio is worse than peer average of $0.94