Review a Jodhpur retailer before supplier payments
Current ratio and quick ratio · Fictional case
The situation
The shelves of a Jodhpur retailer are full after a seasonal buying spree. The owner expects customers to buy on credit, while suppliers are already asking for payment.
The owner is pointing to the value of stock as proof the bills are covered. Show what changes when you count only assets that can turn into cash more quickly.
- Cash and collectible invoices
- ₹3 lakh + ₹9 lakh
- Inventory
- ₹12 lakh
- Short-term bills
- ₹15 lakh
Full data and assumptions
A retailer has ₹3 lakh cash, ₹9 lakh in invoices expected to be collected, ₹12 lakh inventory and ₹15 lakh of short-term bills. There are no other current assets.
Your task
Calculate both ratios and identify the question to ask next.
Reveal step-by-step solution
Set up the problem
Current assets total ₹24 lakh. The current ratio is ₹24 ÷ ₹15 = 1.60×.
Work through the numbers
Quick assets are ₹12 lakh after excluding stock. The quick ratio is ₹12 ÷ ₹15 = 0.80×.
Interpret the result
Ask when invoices will be collected and when bills must be paid. The ratios alone cannot establish the size of any cash gap.
What to remember
Check the quality and timing of the assets before relying on the ratio.