 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 -
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Discussions about Quick Ratio.
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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 ma (...)
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Why ACID Test Ratio?
Why is the Quick Ratio also called: Acid Test Ratio? Thanks for your ideas... (...)
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Financial Statement Analysis | Ratio Analysis
Ratio Analysis, Finanical Statement Analysis (...)
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3 Minute Introduction to Financial Ratio Analysis: Why do it and What are the Main Types?
Types of Financial Ratios, Financial Ratio Analysis, Financial Ratio Types (...)
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Quick Ratio Diagram
Measuring Liquidity (...)
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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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