In search of a benchmark for the quick ratio: The Polish-German setting

Abstract

Objective: The objective of the article is to empirically assess the benchmarks for the quick ratio (QR) commonly provided in the Polish literature. The article challenges the suggestion of a single benchmark despite a country’s and industry’s uniqueness. It concentrates on the Polish-German setting because of the intensive cooperation between the two countries.

Research Design & Methods: Apart from reviewing and critiquing the existing literature, the article presents the results of empirical analysis. The research sample comprised 998 710 Polish firm-years and 1 579 619 German ones. Data was retrieved from the Orbis Database for going concern, non-financial firms from 2013 to 2022. Research methods comprised analyses of distributions, including descriptive statistics and histograms, parametric and nonparametric ANOVA, and trend analysis.

Findings: The analysis shows that the benchmark for the quick ratio depends on the country, industry, period, and firm size. Standards should be drawn from quartiles instead of the arithmetic mean because of the high variability of QR. The range for QR is respectively wide. For Poland, it ranges from 0.6 (the first quartile) to 2.7 (the third quartile), with a median of 1.2 for the total sample. For Germany, it ranges from 0.7 (the first quartile) to 3.9 (the third quartile), with a median of 1.6. Benchmarks vary annually in Poland and Germany. Medians and third quartiles increase over time. They grow faster in Germany. There are substantial between-industry differences in both countries. The pattern of these differences is unique to a country. The size of the firm negatively influences the desired liquidity level in both countries.

Implications & Recommendations: Because of substantive between-country, industry, period, and firm size differences in benchmarks, analysts and investors must be sensitive to the standards they use in assessing investment opportunities. A shock in the economy increases risk and, hence, benchmarks.

Contribution & Value Added: The article’s main contribution is the empirical verification of benchmarks for the quick ratio provided in the Polish literature. Analysts should not trust theoretical concepts when looking for benchmarks. They must compare the firm’s financial standing with that of other firms from the same country, industry, period, and of a similar size.

Keywords

liquidity ratios, quick ratio, financial analysis, Poland, Germany

Author Biography

Piotr Wójtowicz

PhD, Associate Professor at the Krakow University of Economics (Poland). His research interests include financial reporting, earnings management, and the impact of cultural factors on earnings quality.

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