What is Quick Ratio?
The acid-test of liquidity - can you cover short-term bills without selling inventory?
Quick Ratio: definition
The quick ratio is a stricter cousin of the current ratio. By excluding inventory, which can be slow or hard to convert to cash, it tests whether a business could meet its short-term obligations quickly if sales stopped. A ratio of 1.0 means quick assets exactly cover current liabilities; above 1.0 suggests a comfortable liquidity cushion.
Quick ratio
Quick Ratio = (Cash + Marketable Securities + Receivables) ÷ Current Liabilities
Equivalently, (Current Assets − Inventory − Prepaids) ÷ Current Liabilities. Inventory is excluded because it is the least liquid current asset.
How Fintra handles it
Fintra computes the quick ratio and current ratio live from the balance sheet, so liquidity is visible day to day rather than at quarter-end. Because receivables aging and cash are on the same model, you can see not just the ratio but the quality behind it - whether those receivables are actually collectible.
- Quick and current ratios computed live from the balance sheet
- Receivable quality visible alongside the headline ratio
- Alerts when liquidity ratios fall below a policy threshold
Worked example
Frequently asked questions
What is a good quick ratio?
A quick ratio of 1.0 or higher is generally considered healthy - it means liquid assets cover current liabilities without relying on inventory sales. Below 1.0 can signal liquidity risk, though acceptable levels vary by industry and how fast receivables convert to cash.
What is the difference between the quick ratio and the current ratio?
The current ratio includes all current assets, including inventory and prepaids; the quick ratio excludes them, counting only cash, securities, and receivables. The quick ratio is the more conservative test of immediate liquidity.
Why is inventory excluded from the quick ratio?
Because inventory is the least liquid current asset - it may take time to sell and might sell below cost. Excluding it gives a truer picture of whether a business can meet obligations quickly, which is why the quick ratio is called the acid test.
Can the quick ratio be too high?
A very high quick ratio can mean idle cash or uncollected receivables that could be put to more productive use. Strong liquidity is good, but excessive liquid assets may signal poor capital deployment. Read it alongside how efficiently the business uses its cash.
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