Quick Ratio Calculator
Calculate the acid-test ratio to measure company liquidity and short-term solvency
Calculate Quick Ratio (Acid-Test Ratio)
Liquid Assets
Cash on hand and short-term deposits
Short-term investments and securities
Money owed by customers
Current Liabilities
Short-term obligations due within one year
Financial Metrics
Quick Ratio Results
Formula: Quick Ratio = (Cash + Marketable Securities + Accounts Receivable) ÷ Current Liabilities
Calculation: ($500,000 + $200,000 + $300,000) ÷ $750,000 = 1.33
Interpretation: The company can cover 1.33x its current liabilities with liquid assets
Liquidity Assessment
Example: Healthy Company Analysis
Liquid Assets
Cash & Equivalents: $500,000
Marketable Securities: $200,000
Accounts Receivable: $300,000
Total Liquid Assets: $1,000,000
Current Liabilities
Current Liabilities: $750,000
Quick Ratio: 1.33
Good liquidity - can cover liabilities 1.33 times
Quick Ratio Guidelines
Critical
Severe liquidity crisis
Immediate action required
Concerning
Insufficient liquidity
Cannot fully cover obligations
Adequate
Meets requirements
Tight but manageable
Good
Strong liquidity
Comfortable coverage
Excellent
Very strong liquidity
May indicate excess cash
Key Insights
Quick ratio excludes inventory, focusing on most liquid assets
Ratio ≥1.0 indicates ability to cover short-term obligations
Compare with industry peers and historical performance
Higher ratios generally indicate better liquidity management
Very high ratios may suggest inefficient cash management
Understanding Quick Ratio (Acid-Test Ratio)
What is Quick Ratio?
The Quick Ratio, also known as the Acid-Test Ratio, measures a company's ability to meet short-term obligations using its most liquid assets. It's a more stringent liquidity test than the current ratio as it excludes inventory.
Why is it Important?
- •Assesses immediate liquidity without relying on inventory
- •Helps predict financial distress and bankruptcy risk
- •Critical for creditors and lenders in decision-making
- •Indicates management efficiency in cash management
Formula and Components
Quick Ratio = (Cash + Marketable Securities + A/R) ÷ Current Liabilities
- Cash & Cash Equivalents: Most liquid assets
- Marketable Securities: Short-term investments
- Accounts Receivable: Money owed by customers
- Current Liabilities: Short-term obligations
Key Difference: Unlike current ratio, quick ratio excludes inventory and prepaid expenses.
Factors Affecting Quick Ratio
- 📈Improved Collections: Faster receivables collection
- 📈Cash Management: Better cash flow planning
- 📉High Payables: Increased short-term obligations
- 📉Poor Collections: Slow receivables turnover
Quick Ratio vs Current Ratio
- 🔍Quick Ratio: Excludes inventory and prepaid expenses
- 🔍Current Ratio: Includes all current assets
- 🔍Acid Test: More conservative liquidity measure
- 🔍Better Indicator: For immediate payment ability