The quick ratio measures a company's ability to pay off the claims of short-term creditors without relying on the sale of its inventories. This is a valuable measure since in practice the sale of inventories is often difficult. Current Assets - Inventory Current Liabilities Activity Ratios Activity ratios indicate how effectively a company is managing its assets. This measures the number of times inventory is turned over. It is useful in determining whether a firm is carrying excess stock in inventory.
Inventory is taken at the balance sheet date.
Some companies choose to compute an average inventory, beginning inventory, plus ending inventory, but for simplicity use the inventory at the balance sheet date. This ratio is the average time a company has to wait to receive its cash after making a sale. It measures how effective the company's credit, billing, and collection procedures are. The use of 360 is standard number of days for most financial analysis. A company is said to be highly leveraged if it uses more debt than equity, including stock and retained earnings.