Quick Ratio

What is the Quick Ratio?

The Quick Ratio, also known as the acid-test ratio, is a financial metric used to determine a company's short-term liquidity position. It evaluates the capability of a business to use its near-cash or quick assets to extinguish or retire its current liabilities immediately.

Short Description: A liquidity indicator that measures a company's ability to pay its short-term liabilities with its most liquid assets.

The Quick Ratio is calculated as follows:

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

• Cash and Cash Equivalents: Funds available for immediate use.
• Marketable Securities: Liquid financial instruments that can quickly be converted into cash.
• Accounts Receivable: Money owed to the company for goods or services provided.
• Current Liabilities: Obligations due within one year.

A Quick Ratio greater than 1 indicates that the company has more liquid assets than short-term liabilities, suggesting good short-term financial health.