Quick ratio (acid-test)
Financial Accounting glossary · Financial Statement Analysis & Ratios
Definition
(Current assets - inventory) / current liabilities; stricter liquidity measure excluding less-liquid inventory.
Quick ratio (acid-test) in plain English
The quick ratio asks a blunt survival question: if all your bills came due right now, could you pay them with only your fastest cash? You take the money and near-cash a company has, deliberately leave OUT its unsold inventory (because turning shelves of product into cash can take a while), then divide by what it owes soon. The formula is (current assets - inventory) div current liabilities; a result of 1 means you could just barely cover your short-term debts without selling any goods. It's the stricter, more paranoid cousin of the current ratio — hence the nickname "acid-test," the old term for a definitive proof.
Also called: acid-test
Practice Quick ratio (acid-test)
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