Quick Ratio Calculator
Calculate your quick ratio (acid-test ratio) to assess short-term liquidity and ability to meet obligations.
Cash, marketable securities, accounts receivable, etc.
Value of inventory to subtract from current assets
Debts due within one year
What is the quick ratio?
The quick ratio (acid-test ratio) measures a company's ability to pay short-term obligations with its most liquid assets. Formula: (Current Assets - Inventory) / Current Liabilities. It excludes inventory because it may not convert to cash quickly. A ratio of 1.0+ means you can cover all current liabilities with liquid assets.
What is a good quick ratio?
Quick ratio of 1.0 or higher is generally good, meaning you can cover current liabilities. 1.5+ is excellent. 0.5-1.0 is acceptable but may indicate tight liquidity. Below 0.5 suggests potential difficulty meeting short-term obligations. Industry standards vary - service companies typically have higher ratios than manufacturers.
What is the difference between quick ratio and current ratio?
Quick ratio excludes inventory and prepaid expenses, measuring only the most liquid assets (cash, marketable securities, receivables). Current ratio includes all current assets including inventory. Quick ratio is more conservative and stringent. Example: Current assets $500K, Inventory $100K, Liabilities $200K → Current ratio = 2.5, Quick ratio = 2.0.
Why is inventory excluded from the quick ratio?
Inventory is excluded because it may take time to sell and convert to cash, especially during financial distress. Inventory can become obsolete, damaged, or sold at discount. The quick ratio focuses on assets that can be quickly converted to cash (within 90 days) to pay immediate obligations. This makes it a more conservative liquidity measure.
What counts as quick assets?
Quick assets include: Cash and cash equivalents (checking, savings), Marketable securities (stocks, bonds easily sold), Accounts receivable (money owed by customers). EXCLUDE: Inventory, prepaid expenses, long-term investments, fixed assets. Quick assets must be convertible to cash within 90 days without significant loss of value.
Can the quick ratio be too high?
Yes, a very high quick ratio (above 3.0) might indicate: 1) Excess cash not being invested for growth, 2) Inefficient use of assets, 3) Too much inventory being excluded, 4) Missed investment opportunities. While high liquidity is safe, it may mean you're not optimizing returns. Balance safety with growth - 1.0-2.0 is typically optimal for most businesses.