Question

Please provide a 300 word detailed analysis of the Quick Ratio of Skechers USA, Inc. and the athletic footwear industry in which operates in (the numbers are provided in the table below). Further, describe the financial position it puts the firm/industry in. Is it a strength or weakness? Are there any trends?

Quick Ratio

Quick Ratio ($, K)	2018	2017	2016
Current Assets – Inventories –        Prepaid Expenses	$1,537,837.00	$1,176,816.00	$1,071,179.00
/ Current Liabilities	$850,222.00	$597,348.00	$621,730.00
Skechers U.S.A., Inc.	1.8	2.0	1.7
Industry	1.2	1.2	1.1

Answer 1

Quick Ratio is a ratio which shows that if all the non-monetary assets, such as inventory and prepaid expenses are deducted from the current assets, then we can compare the remaining monetary items like cash and cash equivalent and debtors with the total current liability to see how much can our assets take in case of the liabilities or how much the current assets are worth in respect of current liabilities. Here, in the question, we can clearly see that the company's quick ratio is fluctuating and also that at first the ratio is low at 1.7 and then it goes on till 2 and then comes down to 1.8 times. Now, this means that the current assets except the prepaid expenses and the inventory is at 1.7 times of the current liability in 2016, 2 times in 2017, and 1,8 times in 2018. This can be seen as a problem of the fluctuating monetary assets and more inventory in the current assets and more non-cash prepaid expenses. Although the company is way above the industry standards and that shows the company is way above the competition and other companies in the industries are not working up to the mark. But the company in question is working good as compared to the industry.

Now the importance of quick ratio is to ascertain how quickly the liabilities can be given out in the case of emergencies and how much current assets can be literally used for such liabilities. The more the current assets that the company have except inventory and prepaid expenses, it is better for the company as then the data will show that their quick ratio is good and the company will be able to cope up with the liabilities when needed.