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In general, a company would prefer a higher quick ratio and a higher basic earning power ratio.
What is a quick ratio?
A company's capacity to satisfy its short-term obligations using its most liquid assets is measured by the quick ratio, which serves as a gauge of its short-term liquidity position.
It is also known as the "acid test ratio" because it shows how quickly the company can pay down its current liabilities with its near-cash assets (assets that can be quickly converted to cash). A fast test intended to yield results right away is referred to in slang as a "acid test."
The quick ratio compares a company's current obligations to its available liquid assets in terms of dollar value. Current liabilities are a company's debts or commitments that must be paid to creditors within a year, whereas liquid assets are those current assets that can be easily turned into cash with little impact on the price received on the open market.
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