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This doubt is from page 70 of the BPP Text, under 5.2 2nd para.
” For Companies with a fast inventory turonver ratio, a quick ratio can be less than 1 without suggesting that the company is in cash flow difficulties. ”
I don’t udnerstand the meaning of this sentence.
Please Help . . .the quick ratio excludes inventory because usually the cash from selling the inventory takes longer to receive than the time when we have to pay the payables (because inventory needs selling first).
But if inventory is being sold fast then we will get the cash faster and there is less of a problem.
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