 What
is the Quick Ratio? Definition
The Quick Ratio method is a model for measuring the liquidity of a company.
It is calculated by taking all assets which are quickly convertible into cash,
and to divide the result by all current liabilities. It specifically excludes
inventory. It is an indicator of the extent to which a company can pay current
liabilities without having to rely on the sale of inventory.
Typically, a Quick Ratio of 1:1 or higher is good, and indicates a company
does not have to rely on the sale of inventory to pay the bills.
Calculation of the Quick Ratio. Formula
For the Quick Ratio formula, see the picture on the right.
This ratio is also known as the Acid-test Ratio.
A thing to remember when we use the Quick Ratio is that this model ignores
timing of both cash received and cash paid out.
Take the example of a company with no bills due today, but lots of bills
which are due tomorrow. This company may show a good Quick Ratio, but can
not be considered as having a good liquidity.
Book: Steven M.
Bragg - Business Ratios and Formulas : A Comprehensive Guide -
Book: Ciaran Walsh
- Key Management Ratios -
Quick Ratio Special Interest Group
 Visit the Special Interest Group
Recent User Comments
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Steve - US
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Timing of Activity |
"The author's point using "bills due tomorrow" is somewhat flawed as most likely they still are considered a short term obligation and you're just grossing up the equation." |
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Khin Thit Yee - Myanmar
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Quick Ratio |
"Higher quick ratio is not always a good thing. It might indicate that the business is over-trading and it need to manage its working capital, especially accounts receivables management to prevent unnecessary bad debts." |
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Kenneth - US
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Quick Ratio over Time |
"Often most interesting is to compare the way in which the quick or acid-test ratio develops over time. It's harder to manipulate by bad guys, and even a modest decline in this quick ratio over a period of time may indicate potential problems, and is certainly an indication to look for reasons." |
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 Comment on this Page
Quick Ratio Education & Events
Compare with the Quick Ratio: Current
Ratio | Cash Ratio
| Z-Score |
Discounted Cash Flow |
Free Cash Flow |
Economic Value Added |
CFROI
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