ok...
current ratio = current assets/current liabilities
quick ratio =current assets-stock/current liabilities
These ratios are used to calculate the liquidity position of a business, which means how quickly can a business gather cash to pay back its short term debts such as creditors, loans, expenses such as bills, etc.
It depends on how much 'working capital' or cash in hand u have
A current ratio should be 2:1, which shows that the business can pay back its debtors on time. Anything lower, for example 1:1 or 0.75:1 suggest a financial crisis for the business.
A quick ratio should be 1:1. We deduct stock because it is believed that from all the current assets (debtors, cash in hand, cash at bank, prepaid expenses, stock) it is the hardest to convert into cash.
A high ratio, for example 3:1 is ALSO not good, because it implies that cash is sitting idle in the business, which can be used more effectively, for example, used to pay back loans, etc.
Hope that explained it...
