EX 11-23 Quick ratio

The current assets and current liabilities for Apple Computer, Inc., and Dell Inc. are shown as follows at the end of a recent fiscal period:


Apple Computer, Inc. (in millions) Sept. 26, 2009
Dell Inc. (in millions) Jan. 29, 2010
Current assets: Cash and cash equivalents $ 5,263 $10,635 Short-term investments 18,201 373 Accounts receivable 4,496 8,543 Inventories 455 1,051 Other current assets* 3,140 3,643 Total current assets $31,555 $24,245 Current liabilities: Accounts payable $   9,453 $15,257 Accrued and other current liabilities 2,053 3,703 Total current liabilities $11,506 $18,960 *These represent prepaid expense and other nonquick current assets.


a. Determine the quick ratio for both companies.

b. Interpret the quick ratio difference between the two companies.

Answer:

a.  
 Apple Computer, Inc. Dell Inc. Quick Ratio 2.4 1.0  
 Quick Ratio = 
sLiabilitie Current Assets Quick   
 Apple Computer, Inc.:  
 Quick Ratio = 
506,11$ 496,4$+201,18$+263,5$
 = 2.4   
 Dell Inc.:  
 Quick Ratio = 
$18,960 $8,543+$373+$10,635
 = 1.0  



b. It is clear that Apple Computer’s short-term liquidity is stronger than Dell’s. Apple’s quick ratio is 140% [(2.4 – 1.0)/1.0] higher. Apple has a much stronger relative cash and short-term investment position than does Dell.  Apple’s cash and short-term investments are over 74% of total current assets (204% of current liabilities), compared to Dell’s 54% of total current assets (73% of current liabilities). In addition, Dell’s relative accounts payable position is larger than Apple’s, indicating the possibility that Dell has longer  supplier payment terms than does Apple. A quick ratio of 2.4 for Apple suggests ample flexibility to make strategic investments with its excess cash, while a quick ratio of 1.0 for Dell indicates an efficient but tight quick asset management policy.

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