Quick Ratio
A liquidity measure of quick assets divided by current liabilities.
The quick ratio (acid-test ratio) measures a business's ability to meet short-term obligations using only its most liquid assets—cash, marketable securities, and accounts receivable (excluding inventory). A ratio above 1.0 means the business can cover its current liabilities without selling inventory. It's a stricter test of liquidity than the current ratio.
Formula
Quick Ratio = (Cash + Marketable Securities + Accounts Receivable) ÷ Current LiabilitiesExample
A retailer has $20,000 cash, $15,000 in receivables, and $40,000 in current liabilities—the quick ratio is 0.875 ($35,000 ÷ $40,000), indicating tight liquidity without inventory sales.
Why It Matters for Your Business
The quick ratio reveals whether you can pay bills even if inventory doesn't sell, making it a more conservative and reliable liquidity test than the current ratio.
Related Terms
More Business Terms
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Ensuring account balances match between different records.
Break-Even Point
The sales volume at which revenue equals costs.
Budget
A financial plan estimating income and expenses.
Financial Forecast
A prediction of future financial performance.
Capital Expenditure
Funds used to acquire or upgrade physical assets.
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