Quick ratio
Principles of Finance glossary · Financial Statements, Markets & Working Capital
Definition
(Current assets minus inventory) divided by current liabilities; a stricter liquidity measure than the current ratio.
Quick ratio in plain English
The quick ratio checks whether a company could pay its short-term bills right now if it had to, using only its most dependable cash-like assets. It takes what the company owns that can be turned into cash fast — but deliberately IGNORES inventory, because unsold products might not sell quickly or at full price — and divides that by the bills due soon. Think of it as asking, 'If I couldn't sell any of my sneakers this month, could I still cover rent from the cash and money owed to me?' A quick ratio above 1 means yes, with room to spare; it's a stricter, more skeptical test than the current ratio, which does count inventory.
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