Quick income ratio (QIR) shows the ratio of operating cash flow adjusted for financial calculations to the similar financial results.
Alternative names of Quick Income Ratio:
- Quick Income Ratio
What Does the Indicator of QIR Show?
An enterprise is often financed by a loan or investment funds. In such situation, it is very important that it generates enough money not only to support current activity, but also to repay its debts. That is why it makes sense to conduct the analysis of operating income along with the financial costs like paid taxes and interest. The result represents the initial cash flow from the financial activity. Similar indicators refer to the financial performance. Comparing these metrics, it will be possible to determine the ability of an enterprise to pay interest and taxes in the future as well as understand better the level of the current solvency.
Formula of the Quick Income Ratio
QIR = (Operating cash flow + Percentage paid + Taxes paid) / (Net profit + Interest to be paid + Income tax + Depreciation)
Normative Value of the Quick Income Ratio
This indicator is calculated if the cash flow statement is composed indirectly. Cash flow statement prepared by a direct method does not provide the necessary figures. The normal situation is when the coefficient is approximated or equivalent to 1. Significant deviations, if any, require a detailed analysis.