Quick ratio is a stringent measure of liquidity since it deducts the least liquid parts of the current assets like inventory, trade deposits and shot term prepayments and then it’s compared against current liabilities to see the actual ability of the company to meet short term financial obligations.
This is a more honest picture of the firm’s liquidity position to pay of its short term liabilities and Tesco’s quick ratio was 0.37 in 2005 which is more or less the same picture of the company’s financial position. In 2006 it was 0.32, in 2007 it was 0.52, in 2008 it was 0.59 and in 2009 it was 0.76. The company did not have the amount of liquid assets to pay its current liabilities but the effect on this ratio has been more or less the same since the growing trend again shows the company has shown an outstanding financial performance and this promise to serve the stakeholders with their excellent strategies is the secret behind Tesco’s success.
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