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Hi
I understand in the case of quick acid ratio for low inventory turnover is ideally 1; however I have come across in BPP text in the case of company having faster inventory turnover, the acid text of lower than 1 may not indicate the company is facing cash flow issues, I am not sure I understand this point…appreciate if someone could help on this…thanksIt is not called the quick acid ratio – it is either the acid text ratio, or the quick ratio (two names for the same thing).
It is the same as the current ratio with the inventory left out, because it usually takes longer to sell inventory and then receive the cash from customers, then the time we take to pay suppliers. If inventory is being sold quickly then this delay becomes less of a problem.
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