A company's capacity to satisfy its immediate financial obligations is shown by its quick assets, sometimes called liquid or current liquid assets. Cash, cash equivalents, and marketable securities are among them. On the balance sheet, deduct prepaid expenses from current assets to arrive at quick assets. Cash on hand, short-term investments, and accounts receivable are a few examples of fast assets.
Sometimes a well-established business may go through unpredicted cash flow issues. This situation may be because of a shutdown of business for a few days or a customer delaying payment. This compels them to sell their assets to cover all the expenditures.
Selling assets to overcome this situation is going to affect your financial standing. Learn how it impacts your financial condition. Read this article to learn about quick assets and how you can calculate your quick assets to handle emergencies.
Did you know?
Quick assets provide a snapshot of a company's immediate liquidity and ability to cover its short-term liabilities. By focusing on assets that can be easily converted into cash, quick assets offer valuable insights into a company's financial health and its ability to respond to unforeseen financial challenges or opportunities on time.
What Are Quick Assets?
If a business is facing some cashflow issues and needs more cash than it has on hand to meet the emergency, then these quick convertible assets can help you in this.
Quick Assets are the most liquid assets owned by a company with a commercial or exchange value that can be transformed into cash quickly. Quick assets generally refer to cash and equivalents, fixed deposits, bank balances, liquid funds, marketable securities, accounts receivable, etc.
Depending on the company's size, a large or small portion of quick assets is always tied to accounts receivable. This analysis helps the company to display its solid working capital.
Quick assets indicate the robust ability of the company to meet short-term requirements. It represents the company’s significant working capital. So a well quick asset is essential for a company to face some critical situations.
Definition of Quick Asset
Quick assets are economic resources owned by the company that can be converted into cash without losing their value within a short period. The “quick “ term in quick assets signifies how quickly or rapidly it can be converted into cash.
Also Read: The Difference Between Inventory And Stock: A Comprehensive Guide
Example of Quick Asset
Some examples of quick assets are listed below.
- Shorter-term cash investments in securities, stocks, or other forms of equity
- Account receivable
- Cash and cash equivalents
- Fixed deposits
- Bank Balances
List of Quick Assets for a Business
Assets that can be quickly consumed or easily changed into currency are referred to as quick assets, also known as liquid assets. They are crucial for a company's liquidity and capacity to pay short-term debts. The following is a list of typical business fast assets:
1. Cash: The actual money and cash equivalents the company has.
2. Marketable Securities: Investments with a short time horizon that are quickly liquidated or converted into cash.
3. Accounts Receivable: Customers owe the company funds for goods or services already rendered.
4. Inventory: Items that can be sold or used in the production process, such as finished goods, raw materials, or works-in-progress.
5. Prepaid Costs: Costs paid in advance, such as rent or insurance.
6. Short-term Investments: Investments with maturities of less than a year, such as Treasury bills or money market funds, are referred to as short-term investments.
7. Deposits in banks: Money kept in company checking, savings, or money market accounts.
8. Marketable Receivables: Accounts receivable that can be sold to a third party for quick cash are referred to as marketable receivables.
Also Read: Understand the Basics of Revenue Models and How Effective They Are?
Classification of Quick Assets
The undermentioned components are considered to define quick assets.
1. Cash and Equivalents
This includes cash on hand or cash kept in the bank account by the company, which can be withdrawn without facing any difficulties or restrictions. Cash is the most straightforward asset of the company.
Cash equivalents are generally an extension of the cash, which includes investments with low risk and high liquidity. This can sometimes be treasury bills, commercial papers, bank deposits, etc. These are highly liquid assets that can be instantly converted into cash.
2. Account Receivable
Account receivable is the amount the company expects to collect from the customers after delivering goods, commodities, or services. Here the company has already delivered the product to the customer, but the payments are not received yet due to some reasons.
In this situation, the calculated payments are included in the accounts book. The amounts which can be collected within a short period should only be entered as quick assets. The uncollectible or long-time receivable amounts are not included as quick assets.
3. Marketable Securities
These types of assets are short time investments that mature in a year or less. Stocks, bonds, preferred shares, and ETFs are included as types of marketable securities.
These assets can be converted into cash quickly at the quoted price in the market. These can be converted without losing their value. These marketable securities are free from time-bondable dependencies.
4. Short-term Investments
Short-term investments are expected to be converted within a year. According to the requirements, these types of investments are liquidated quickly.
Stocks, bonds, and other securities are considered as short time investments.
The Formula for Quick Asset
Quick assets are calculated to track the company's financial health or make any kind of financial decisions for the company. These are the liquid assets owned by the company.
Quick assets are calculated by summing up cash, cash equivalents, short-term investments, and account receivable.
Quick assets = Cash Cash equivalents short-term investments Accounts receivable
Quick assets can also be calculated by substituting inventory and prepaid expenses of the company from the company’s current assets. The inventory and prepaid expenses are excluded as they can not quickly convert into cash.
Quick assets = Current asset - inventory - expenses
Calculation of Quick Ratio
The quick ratio is calculated to decide the company’s capability to pay its current liabilities by using the liquid assets of the company. It is calculated to know if the company can pay the current liabilities without selling its inventory or using additional financing. It calculates the quick assets available against the current responsibilities. Here current liabilities define the company’s requirements, debts, obligations, or contracts that must be paid to creditors within a certain period.
Quick ratio = Quick assets / Current liabilities
The quick ratio is calculated by dividing most liquid or current assets by the current liabilities.
Example and Interpretation of Quick Ratio
Quick ratio defines how liquid a company is. It indicates the short-term cash capability of a company. One can easily understand and calculate it.
All other components, like shorter-term cash investments in securities, stocks, or other forms of equity, account receivable, cash, and cash equivalents, etc., are entered into a balance sheet to calculate the quick ratio.
If the quick asset of a company is given as $15000 and the current liabilities of the company are $33123, then the calculated quick ratio is 0.452. You have to divide the quick asset by current liabilities.
Quick ratio signifies the internal management of the company and the external investor. It signals whether the company will run out of cash or not. Generally, a higher quick ratio is better for a company. It indicates that the company has more quick assets for emergencies.
How Is the Quick Asset Different From the Current Asset?
Quick assets can be easily and quickly transformed into cash. Current assets are long-term fixed assets that can not be converted within a short period. Current assets comprise cash, cash equivalents, prepaid liabilities, expenses, inventory, short-term investments, and other liquid assets.
What Is the Use of Quick Assets in Financial Analysis?
- Quick assets play a measure role for short time financial requirements of a company.
- It indicates whether a company can sustain itself in a financial crisis or not.
- Using a quick ratio, investors decide whether it is a good bet for an investment.
- The two companies capability to handle unavoidable situations can be compared based on their quick ratio values.
Conclusion
Quick assets are the liquid assets of the company which can be easily converted in a quick period. It signifies how quickly the assets can be converted into cash.
The quick ratio indicates the company’s capacity to deal with any emergency. Quick assets are essential for a company’s short time solvency. A company should balance its quick and current assets for perfect management and efficient operations.
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