Quick Ratio

A strict liquidity test of whether a company can pay short-term bills using only its most liquid assets, excluding inventory.

Part of the Financial Health & Risk course · Lesson 6 of 13

Formula

(Current Assets − Inventory) / Current Liabilities

What it is

The quick ratio, also called the acid-test ratio, measures a company's ability to cover current liabilities using assets that can be turned into cash quickly. It excludes inventory and prepaid expenses, which can be slow or uncertain to convert, leaving mainly cash, marketable securities, and receivables. It is a more conservative cousin of the current ratio.

Why it matters

By removing inventory, it shows whether a company could meet short-term obligations even if it could not sell any stock, which matters for businesses with slow-moving or seasonal inventory. A quick ratio below 1 suggests reliance on selling inventory or new financing to cover near-term bills. Comparing it to the current ratio reveals how much of a company's liquidity depends on inventory.

How it's calculated

Subtract inventory (and usually prepaid expenses) from current assets, then divide by current liabilities; equivalently, sum cash, marketable securities, and receivables and divide by current liabilities.

How Quintarthai uses it

The quick ratio sits alongside the current ratio in the Liquidity ratios on a company's deep-analysis page and is available across the screener and company pages.

Cross-border note. Inventory and receivable classifications are broadly comparable under IFRS and US GAAP, but inventory valuation methods can differ (IFRS prohibits LIFO, which some US filers use), affecting the carrying values that get excluded.

FAQ

Why does the quick ratio exclude inventory?

Because inventory can be slow, costly, or uncertain to sell, especially in a downturn. Excluding it gives a stricter, more conservative view of whether a company can meet its bills with assets that are already cash or nearly cash.

Is a quick ratio of 1 good enough?

A quick ratio of 1 means liquid assets just cover current liabilities, which is generally considered adequate. Healthy levels vary by industry, and businesses with fast-collecting receivables can operate safely below 1.

See Quick Ratio on a real company

Open any stock in Quintarthai and explore it live across the screener and company pages.

Open the app →