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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 Real Estate Funding Solutions. 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 Real Estate Funding Solutions 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 Real Estate Funding Solutions and the firms ability to pay them.

Thus we can see that the quick ratio for our mortgage broker business are projected to be at 64, 189 and 258 for the year 2012, 2013 and 2014 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 includes current assets for the business, which include cash - in the event the cash flow numbers don't come in as projected due to a sluggish economy or 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 $0 annually as projectedin the modules secton of the business plan. Services oriented businesses like real estate financing often don't have any hard inventory to deal with and that explains the lack of a inventory in these calculations.

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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