The higher QUICK ASSETS
are consistent with the agency theory that LT firms are more likely to have agency problems.
For example, the term "Current Assets' replaced "Quick Assets
." The valuation account to offset accounts receivable was now the "reserve for bad debts" instead of "provisions for bad debts." In addition, more information on receivables was required on the balance sheet.
Is it reasonable to insist that a firm maintain (or have, on a certain date) a specified ratio of current or quick assets
to current liabilities?
(20) Cash to sales (21) Accounts receivable to sales (22) Inventory to sales (23) Quick assets
to sales (24) Current assets to sales (25) Working capital to sales (26) Net worth to sales (27) Total assets to sales (28) Cash interval (cash to fund expenditures for operations) (29) Defensive interval (defensive assets to fund expenditures for operations) (30) No credit interval (defensive assets minus current liabilities to fund expenditures for operations) (used as a predictor in this study).
Frequently used are the current ratio (current assets divided by current liabilities) and the quick or acid test ratio (quick assets
, such as cash, A/R and marketable securities divided by current liabilities).
Interestingly, the bank loan required the borrower to maintain a specified level of "quick assets
," and the portfolio stock served to meet that requirement.