Quick Ratio (Standard)
Quick Ratio (Alternate)
Definition – What is the Quick Ratio (aka Acid Test Ratio)?
The Quick Ratio (also known as the Acid Test Ratio) is a measure of how well a company can meet a short-term financial obligation.
A high quick ratio means that a company can easily pay a short-term financial obligation. A low quick ratio means they might not be able to pay it.
Formula – How to calculate the Quick Ratio
Quick Ratio (Standard) = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities
Quick Ratio (Alternate) = (Current Assets – Inventory) / Current Liabilities
Standard – A company has cash of $3,000, marketable securities of $4,000, accounts receivable of $3,000, and current liabilities of $5,000.
Quick Ratio (Standard) = ($3,000 + $4,000 + $3,000) / $5,000 = $10,000 / $5,000 = 2.00
Alternate – A company has current assets of $10,000, inventory of $4,500, and current liabilities of $5,000.
Quick Ratio (Alternate) = ($10,000 – $4,500) / $5,000 = $5,500 / $5000 = 1.10
Sources and more resources
- Wikipedia – Quick ratio – Wikipedia’s entry on the quick ratio as well as its formula.
- Accounting Tools – How to use the quick ratio in financial analysis – Some ideas on financial analysis with the quick ratio.
- Investopedia – Quick Ratio – A short entry on the quick ratio including some sample calculations.