Question

does increase in quick ratio over time usually means the company's liquility is improving and the company is managing the short-term assets well?

Answer 1

First let me write down the formula for quick ratio,

Quick ratio = (current asset - inventory )/current liabilities

The numerator part consist of most liquid assets. If this ratio is more than 1, then it means that the company has enough liquid assets to compensate the liability. This ratio shall conservatively be more than 1.2 so that the liquid assets is slightly more than the liability. Again this depends on the company.

In brief, yes, if this ratio increases then the liquidity increases. But if this ratio is too high, then it also means that the company is not using the cash in constructive way and the most liquid assets are ideal inside the locker. This results in restricting the profit.