Quick ratio (acid test) measures a company's ability to pay short-term obligations using only the most liquid assets — cash, marketable securities, and accounts receivable. It excludes inventory because inventory may not be sellable quickly.

How is quick ratio calculated?

Quick Ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities. Alternatively: (Current Assets − Inventory) / Current Liabilities. Both formulas give the same result.

Quick ratio vs current ratio: what's the difference?

Current ratio includes ALL current assets including inventory. Quick ratio excludes inventory. Quick is more conservative because inventory may be hard to convert to cash quickly. For inventory-light businesses (services, software), the two ratios are similar.

What is a good quick ratio?

1.0 or above is considered healthy — the company can cover all short-term debts from liquid assets. 0.5-1.0 is marginal. Below 0.5 is concerning. Above 2.0 may indicate excess liquid assets (inefficient capital allocation).

Why exclude inventory?

Inventory may be hard to convert to cash quickly without significant discounts. In a liquidity crisis, you can't always count on selling inventory at full value. Quick ratio gives a worst-case view of how well liquid assets alone cover short-term obligations.

Should I include accounts receivable?

Yes — receivables are typically considered quick assets because they convert to cash within 30-90 days. However, if you have large overdue receivables or doubtful accounts, consider only the collectable portion.

How does quick ratio help investors?

Investors and creditors use quick ratio to assess short-term solvency. A consistently low quick ratio (< 1) signals reliance on inventory turnover or external financing, which adds risk. A healthy quick ratio (1+) shows the company can weather short-term shocks.

Which industries have higher quick ratios?

Service businesses (consulting, software, healthcare) typically have higher quick ratios because they hold little inventory. Retail and manufacturing have lower quick ratios because much of their working capital is in inventory. Always benchmark within the same industry.

Quick Ratio Calculator

The quick ratio (also called acid test ratio) is a stricter measure of liquidity than current ratio. It excludes inventory because inventory may take time to sell and might be sold at a discount in distressed situations. Formula: Quick Ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities. A quick ratio of 1 or above means the company can cover all short-term obligations from liquid assets alone — without relying on inventory sales.

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calendar_today Updated: April 2026

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scienceAcid Test

Cash & Equivalents

Marketable Securities

Accounts Receivable

Current Liabilities

water_dropQuick Ratio

Quick Ratio

1.33

Moderate

Healthy — comfortable acid-test coverage

Quick Assets

$200,000

Cash %

60%

AR %

40%

tips_and_updates Tips

• Quick ratio above 1 = can pay all short-term debts from liquid assets
• Below 1 = liquidity stress, must sell inventory or borrow
• Quick ratio ≈ current ratio for service businesses (low inventory)
• Big gap between quick and current ratio = inventory-heavy company
• Compare to industry — retail typically lower; tech/services higher
• Watch trend over time — declining quick ratio is a warning sign
• Combine with cash ratio for full liquidity picture

functions Formula

{Quick Ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities [{Cash Cash and cash equivalents (most liquid)} {Marketable Securities Short-term investments easily converted to cash} {Accounts Receivable Money owed by customers (collectable in 30-90 days)} {Current Liabilities Bills due within 12 months}] Quick ratio is more conservative than current ratio because it excludes inventory. For service businesses with little inventory, quick and current ratios are similar. For retail/manufacturing with large inventory, quick ratio is much lower and reveals true liquidity stress.}

science Example: $100k cash + $20k securities + $80k AR / $150k current liabilities

Quick assets = $100k + $20k + $80k = $200k. Quick ratio = $200k / $150k = 1.33. This is healthy — the company can cover 133% of short-term liabilities from liquid assets alone, without selling any inventory. 60% of quick assets is cash/securities (most liquid), 40% is receivables (slightly less liquid).

Expected Results

Quick Ratio 1.3

Total Quick Assets $200,000

Cash + Securities % 60%

AR % 40%

Interpretation Healthy — comfortable acid-test coverage

How to Use This Calculator

Enter cash + securities

Most liquid assets.

Enter accounts receivable

Money owed by customers.

Enter current liabilities

Bills due within 1 year.

Review acid-test result

Quick ratio + interpretation.

The Formula

Quick ratio is more conservative than current ratio because it excludes inventory. For service businesses with little inventory, quick and current ratios are similar. For retail/manufacturing with large inventory, quick ratio is much lower and reveals true liquidity stress.

Quick Ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities

lightbulb Variables Explained

Cash Cash and cash equivalents (most liquid)
Marketable Securities Short-term investments easily converted to cash
Accounts Receivable Money owed by customers (collectable in 30-90 days)
Current Liabilities Bills due within 12 months

tips_and_updates Pro Tips

Quick ratio above 1 = can pay all short-term debts from liquid assets

Below 1 = liquidity stress, must sell inventory or borrow

Quick ratio ≈ current ratio for service businesses (low inventory)

Big gap between quick and current ratio = inventory-heavy company

Compare to industry — retail typically lower; tech/services higher

Watch trend over time — declining quick ratio is a warning sign

Combine with cash ratio for full liquidity picture

Frequently Asked Questions

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