Quick asset

Quick asset

Assets are precious resources that a company may utilise in the future. Current and noncurrent assets are listed on the balance sheet. A company’s assets can be used to assess its financial health and guide financial decisions.  

Quick assets refer to a company’s highly liquid assets. They assist in the calculation of financial ratios that can be beneficial to an organisation’s decision-making process. 

What are quick assets? 

Quick assets are assets that a corporation owns that have a commercial or exchange value and are either already in cash form or can be quickly turned into cash. 

The most liquid assets a firm owns are quick assets. Some are accounts receivable, marketable securities, and cash and equivalents. Quick assets are utilised by businesses to compute several financial ratios, primarily the quick ratio, which is used in decision-making.  

Assets may often be sold quickly by companies without suffering a significant loss in value. Also, they frequently trade or convert rapid assets in less time than a year. Many business managers track short-term investments to gauge the company’s solvency and assess its financial status. 

A significant amount of quick assets may be linked to accounts receivable, depending on the type of firm and the sector in which it works. For instance, businesses that sell goods and services to corporations could have high accounts receivable balances, but retail companies that sell goods to individual consumers might have tiny accounts receivable. 

Types of quick assets 

The types of quick assets are as follows: 

• Cash 

Money is a form of quick asset that a business can immediately access. Many companies maintain cash on hand in business accounts. Payments for goods, client payments for services, and changes in asset value are all possible sources of funding for businesses. 

• Inventory 

An inventory is a detailed list of every item or property owned by a business. This only applies to anything that the company plans to sell. For instance, the clothes on the racks are inventory in a warehouse, but the shelves are not. This inventory value is included in quick assets since it can quickly be converted into cash or revenue. 

• Marketable security 

Marketable security is a quick asset that matures in a year or less. Stocks, money market instruments, treasury notes, and bonds fall under this category. For instance, a business might invest in stocks and then rapidly sell those equities to generate income. 

• Accounts receivable 

Money which a business or organisation may obtain from creditors is called accounts receivable. Several companies providing services before receiving payment keep track of their accounts receivable to keep tabs on their unpaid bills and income. A plumber could assist a customer without collecting payment or creating accounts receivable. 

How to calculate quick assets 

Cash, accounts receivable, cash equivalents, and marketable securities are the key assets that fall under the category of quick assets. Quick assets are used by businesses to calculate specific financial measures that show their liquidity and financial health. They are specifically employed in a quick ratio calculation. 

Current assets, which also include inventory, include quick assets. Thus, 

Current assets – inventories = quick assets 

Quick asset example 

Let’s understand quick assets with the following example: 

MNO’s company has US$5,000 in cash on hand, US$10,000 in marketable securities, and US$15,000 worth of accounts receivable that will be collected in two months. 

What are the company’s total liquid assets? 

Cash + marketable securities + accounts receivables = 5000 + 10000 + 15000 = 30,000 US$ in quick assets. 

Importance of quick asset 

Quick assets give business access to their current working capital ratio for everyday activities. Many businesses rely on liquid assets to bring them through difficult financial times.  

For instance, a company might use its lines of credit for an immediate cash inflow. This new cash balance can be used for anything, including paying staff and buying stock. Since they can be converted to cash in a year or less, quick assets are constantly current. But, businesses may hold some of their assets in a different type of cash that is more difficult to withdraw. 

These assets also cannot be converted into cash. Companies must disclose the value of these assets following accounting regulations and financing requirements. Investors will therefore be aware of the company’s actual exposure. Investors can estimate the company’s fair market worth if they know about each funding source. 

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