How to derive the inventory balance from other financial information

A reader asks, "If you know current assets, current liabilities and the quick ratio, how do you calculate the inventory level?"

The denominator of both the current ratio and the quick ratio are the same, while the numerators of both ratios are also the same, except that inventory is removed from the numerator of the quick ratio. Therefore, to find the inventory amount, just multiply the quick ratio by the current liability, and subtract the result from the current assets figure.

For example, current assets are $1.5 million, current liabilities are $500,000, and the quick ratio is 0.75:1. Multiply the $500,000 of current liabilities by 0.75 to arrive at $375,000, which is the non-inventory amount of current assets. Then subtract the $375,000 from the total current assets of $1,500,000 to arrive at the inventory value, which is $1,125,000.

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