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Tel: (612) 246-4616
QUICK RATIO (or Acid Test Ratio) is a more rigorous test than the Current Ratio of short-run solvency, the current ability of a firm to pay its current debts as they come due. This ratio considers only cash, marketable securities (cash equivalents) and accounts receivable because they are considered to be the most liquid forms of current assets. A Quick Ratio less than 1.0 implies "dependency" on inventory and other current assets to liquidate short-term debt. Formula: (Cash + Cash Equivalents + Accounts Receivable) / Total Liabilities
MARGINAL PROFIT is the change in the total profit that results from the sale of an additional unit.
ECONOMIC INCOME is the maximum amount that can be distributed to owners during the accounting period and leave the business as well off at the end of the accounting period as it was at the beginning of the period; i.e. cash flow based.
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