What are Quick Assets?

Quick assets are a type of assets held by a business with an exchange or commercial worth that can quickly get converted into cash or other cash equivalents. Given this ease of cash conversion, quick assets are popular as liquid assets. They include cash and cash equivalents, bills receivable, and marketable securities. In addition, companies use quick assets to calculate specific current assets – current liabilities ratios in decision making, principally the quick ratio.

Understanding Quick Assets in detail

Assets that can quickly get converted into cash or cash equivalents without incurring high conversion costs are known as quick assets. These quick assets help companies fulfill their short-term financial obligation as and when due to better manage their current assets and current liabilities. 

In addition, the term in which the companies can convert them into cash or marketable securities is usually less than a year. However, quick assets generally do not comprise inventory because converting inventory into cash requires some time. 

Though there are methods by which companies can readily convert inventory into cash or cash equivalents by providing higher discounts, this would result in loss of value of the goods or increased cost for the conversion. Likewise, pre-paid expenditures remain excluded while calculating quick assets as their adjustment requires time, and they are not exchangeable in cash.

Importance of Quick Assets

Businesses further use their quick assets, such as short-term investments or cash, to fulfill their investing, operating, and financing requirements. Additionally, depending on the nature of a company and the industry in which it works, a considerable part of quick assets may remain linked to accounts receivable. 

For example, while enterprises that market products and services to corporate customers may have extensive accounts receivable credits, retail businesses that sell products to individual clients may have minor accounts receivable on their financial statements. In addition, quick assets are beneficial in the following ways:

• Quick assets are highly liquid. Therefore, they are beneficial in fulfilling the short-term liabilities of a company.
• They act as a basis of financing for purchasing new investments without depending on other lines of credit.
• They carry reduced risk in comparison to other non-liquid assets.
• Quick assets represent the substantial financial health of a company which assists investors in their decision to fund the business.

How to Calculate Quick Assets?

Quick assets constitute parts of the current assets that comprise inventories. So to estimate the quick assets, you must deduct inventory from the value of your current assets. Below is the formula to calculate quick assets. 

Quick Assets = Current assets – Pre-paid expenses – Inventories 

Where, 

Current assets = Cash and Cash Equivalent + Short-Term Marketable Investments +  Account Receivable

Types of Quick Assets

Quick assets are the company assets on the balance sheet, which can quickly get converted into cash without any considerable losses. In addition, companies try to keep a suitable amount of liquid or quick assets considering the volatility in the sector they operate in and the nature of their businesses to ensure they can fulfill all their financial obligations. Below is a list of quick assets that are highly liquid. 

• Cash: Cash owned by the business at the bank or other interest-bearing accounts like recurring deposits or fixed deposits to balance current liabilities and current assets. 
• Accounts Receivable: Account receivables refer to the amount that a business is yet to receive from the services and goods delivered to the clients. The company already provided its product/services but has yet to obtain payments against them.  Hence, a business records it as an asset in its financial books. In addition, companies should accurately determine accounts receivable and add these amounts in the financial statements if they receive the payment within a year or less. 
• Marketable Securities: These are investment securities quickly traded in the secondary financial market and converted into cash readily at the quoted price.
• Short-Term Investments:  Bonds, stocks, and other securities investments that get realized in a year are short-term investments.

Quick assets also impact the current assets that a business possesses. So let us understand the key difference between current assets and quick assets.

Difference between Current Assets and Quick Assets

Below is a tabular representation of the difference between current assets and quick assets. 

The Bottom Line

To summarize, quick assets constitute an essential part of a business’s liquidity and act as an indicator of short-term financial well-being. It is why companies maintain these quick assets according to the need and industry they are working in. Company leaders should keep a proportion between having an appropriate level of quick assets in a suitable way that they do not renounce a lot on opportunity expense.