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8.4 Quick Ratio Analysis

Just like the Current Ratio, the Quick Ratio is a key ratio for a small business like A Touch of Tuscany It is a key measure of the liquidity of the operations of a small business. It is even more conservative then the Current Ratio and is calculated by taking the current assets and subtracting the inventory from those current assets; and then dividing the balance by the current liabilities of the small business. The resulting number shows how many times the leanest current assets of A Touch of Tuscany will cover the current liabilities of the firm. As a general rule, the higher the Quick Ratio the greater the cushion between the current obligations of a small business like A Touch of Tuscany and the firms ability to pay them.

Thus we can see that the quick ratio for A Taste of Tuscany are projected to be at 134, 215 and 310 for the year 2009, 2010 and 2011 respectively.These are of course very healthy numbers, but we must again keep in mind that just like the Current Ratio, the Quick Ratio of course includescurrent assets for the business, which include cash - in the event the cash flow numbers don't come in as projected due to a sluggish economyor a lot of competittion in the years ahead, the quick ratio could be negatively impacted.

Inventory that is subtracted from the current assets when arriving at the numerator for this calculation, is projected to be at $20,000 annually as projectedin the modules secton of the business plan.

Quick Links:

  1. Go to the Corresponding Template section for this industry.
  2. Go to the Corresponding Questionnaire section for this industry.

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