Quick Ratio Calculator
Calculate the quick ratio (also called the acid test ratio) — a strict measure of short-term liquidity that excludes inventory. It shows whether a business can pay its immediate obligations with its most liquid assets: cash and receivables.
What Is the Quick Ratio?
The quick ratio — also called the acid test ratio — measures whether a business can meet its short-term obligations using only its most liquid assets. Unlike the current ratio, it excludes inventory, because inventory can take weeks or months to sell and convert into cash.
A quick ratio of 1.3 means that for every $1 of short-term obligations, the business has $1.30 in cash and receivables. That is a comfortable cushion. A ratio below 1.0 means the business would struggle to pay its bills if sales stopped — it would have to sell inventory to raise cash, which may not be possible in time.
Quick Ratio Formula
Quick Ratio = (Cash + Marketable Securities + Accounts Receivable) ÷ Current Liabilities
Some analysts add short-term investments and subtract prepaid expenses. The core idea is the same: count only assets that can become cash within roughly 90 days.
Quick Ratio = (Current Assets − Inventory − Prepaid Expenses) ÷ Current Liabilities
Quick Ratio vs Current Ratio
The two ratios use the same denominator — current liabilities — but differ in what they count as liquid assets:
- Current ratio includes all current assets, including inventory and prepaid expenses.
- Quick ratio excludes inventory and prepaid expenses — only cash, receivables, and short-term investments count.
The quick ratio is always lower than or equal to the current ratio. The gap between them tells you how much of your liquidity depends on selling inventory.
Worked Example
A business has $50,000 cash, $80,000 in receivables, and $100,000 in current liabilities:
Quick assets = $50,000 + $80,000 = $130,000
Quick ratio = $130,000 ÷ $100,000 = 1.30
Interpretation: for every $1 of short-term obligations, the business has $1.30 in liquid assets. Adequate liquidity — it can pay its bills without needing to sell inventory.
How to Interpret the Quick Ratio
- Below 0.75 (Critical) — insufficient liquid assets. The business is heavily dependent on inventory sales to pay its bills.
- 0.75–1.0 (Caution) — borderline. Paying bills is possible but tight.
- 1.0–1.5 (Adequate) — comfortable. Liquid assets cover short-term obligations.
- 1.5+ (Excellent) — strong liquidity. Plenty of cushion.
- Above 3.0 (Possibly too high) — cash may be sitting idle, not deployed productively.
Frequently Asked Questions
What is a good quick ratio?
A quick ratio of 1.0 or above is generally considered healthy — the business has enough liquid assets to cover short-term liabilities. A quick ratio above 1.5 is strong. Ratios below 1.0 signal liquidity risk, though some industries operate fine below 1.0 (for example, grocery retail where inventory turns extremely fast).
Why is it called the acid test ratio?
The name comes from the goldsmiths' "acid test" — a way to verify whether gold was real by seeing if it survived acid. In the same way, the quick ratio is a stringent test: it strips away the harder-to-convert inventory and asks whether the business can meet its obligations with what is truly liquid.
What is the difference between quick ratio and current ratio?
The current ratio includes inventory and prepaid expenses in current assets. The quick ratio excludes them because they may not convert to cash quickly. The quick ratio is the stricter test. A business with $200,000 current assets (of which $80,000 is inventory) and $100,000 current liabilities has a current ratio of 2.0 but a quick ratio of only 1.2.
Does the quick ratio include marketable securities?
Yes. Marketable securities — short-term investments that can be bought or sold quickly — are typically included in quick assets. Prepaid expenses are usually excluded because they cannot be converted to cash — they represent future services already paid for.
Can the quick ratio be too high?
Yes. A quick ratio above 3.0 often means the business is holding too much cash or receivables relative to its liabilities. That is efficient in a crisis but wasteful in normal times — that cash could be invested in growth, used to reduce debt, or returned to shareholders.
When would the quick ratio be lower than the current ratio?
Always — the quick ratio is the same formula minus inventory and prepaid expenses, so it cannot exceed the current ratio. The bigger the gap between the two, the more the business depends on inventory to pay its short-term obligations. A large gap is a warning sign for inventory-heavy businesses.