Quick Ratio

The Quick Ratio, also known as the acid-test ratio, is a liquidity measure that evaluates a company’s ability to meet its short-term liabilities using its most liquid assets. It is calculated by dividing quick assets (cash, marketable securities, and accounts receivable) by current liabilities. Unlike the current ratio, the quick ratio excludes inventory from current assets, as inventory may not be quickly convertible to cash. A quick ratio above 1 indicates that the company can cover its short-term obligations without relying on inventory sales. This ratio provides a more stringent assessment of a company’s immediate financial health and liquidity.