Quick assets are those assets that can be converted into cash within a short period of time. The term is also used to refer to assets that are already in cash form. They are considered to be the most liquid assets that a company owns.
The Main Assets That Fall Under The Quick Assets Category Include:
Cash: This include cheques, coins, paper money, money orders, and deposits in banks
Marketable Securities: This refers to preferred or common stock investments that a company holds in another large corporation.
Accounts Receivable: These are goods or services received that a customer is yet to pay.
Companies use quick assets to compute certain financial ratios that indicate their liquidity and financial health.
Quick Assets Have Two Important Features:
They can be converted into cash quickly
While converting it to cash, there is minimal or no loss in value.
Thus inventories don’t fall under the category of quick assets. This is because realizing cash from them takes time. The only way a business can convert inventory into cash quickly is if it offers steep discounts, which would result in a loss of value.
Most companies keep these liquid assets in the form of marketable securities or cash. However, companies that have quick assets with low cash balance, usually meet their needs for liquidity using their lines of credits. A business that is financially healthy, and does not pay its shareholders dividends, has a balance sheet with a large share of quick assets, in the form of cash or marketable securities. On the other hand, a business that is struggling financially in most cases lacks cash or marketable securities. The only quick asset that is likely to have on its books is trade receivables.
A company may use the total amount of all quick assets to calculate the quick ratio. Here it divides quick assets by its current liabilities. The intention of measuring this is for the company to be able to determine its liquid assets proportion so that it can pay immediate liabilities. Investors and analysts also use the quick ratio to evaluate a company’s ability to deal with its short term debt obligation.