The quick ratio is a liquidity ratio that measures a company’s ability to pay off its short-term obligations with its most liquid assets. It is calculated by dividing a company’s current assets minus inventory by its current liabilities.
A quick ratio of 1:1 means that a company has enough liquid assets to cover its current liabilities. A higher quick ratio indicates that a company has more liquidity and is less likely to default on its debts. A lower quick ratio indicates that a company has less liquidity and is more likely to default on its debts.
The ideal quick ratio is generally considered to be 2:1. This means that a company has enough liquid assets to cover its current liabilities twice over. However, the ideal quick ratio may vary depending on the industry and the company’s specific circumstances.
Option A: 1:1 is a relatively low quick ratio. This means that the company has less liquidity and is more likely to default on its debts.
Option B: 2:1 is a good quick ratio. This means that the company has enough liquidity to cover its current liabilities twice over.
Option C: 3:1 is a high quick ratio. This means that the company has more liquidity than it needs and may be holding on to too much cash.
Option D: 4:1 is an extremely high quick ratio. This means that the company has a lot of liquidity and is unlikely to default on its debts. However, it may also be holding on to too much cash.
In conclusion, the ideal quick ratio is generally considered to be 2:1. However, the ideal quick ratio may vary depending on the industry and the company’s specific circumstances.