 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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Quick Ratio Special Interest Group
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Special Interest Group (20 members)
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Recent topics
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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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Alternate Formula of Quick Ratio?
Which formula is right:
1. The formulae given in the knowledge center
or:
2. Quick Ratio = Current Assets -(Stock+Prepaid Expenses) / C...
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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, a...
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Higher Quick Ratio is not Always Good
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, especial...
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