Quick Ratio, also known as Acid-test ratio, belongs to the family of liquidity ratios and, similar to Cash Ratio, measures a company’s ability to cover short-term liabilities. While the Cash Ratio assesses the company’s ability to settle obligations almost immediately (within days), the Quick Ratio measures the ability to pay liabilities relatively quickly without disrupting operations through the sale of inventory. For this reason, it is referred to in English as the Quick Ratio. It is also known as the first-degree liquidity ratio.
Quick Ratio – Definition and Formula
The Quick Ratio is calculated as the proportion of quick current assets (current assets excluding inventory) to short-term liabilities due within one year. Quick current assets are those that can typically be converted to cash rapidly. This ratio therefore measures the company’s ability to settle liabilities using the most liquid assets excluding inventory.
There are alternative approaches to defining the Quick Ratio, and each category of liquid assets can be defined and calculated separately. For example, quick current assets could be defined as follows: 1 2
Depending on which formula is used, the result may be the same, similar, or different, depending on the assets listed on the company’s balance sheet.
Quick Current Assets (Numerator of Quick Ratio) – Formula
The drawback of the first formula (current assets minus inventory) is that it may include items such as prepaid expenses or advances for services, which are not truly liquid assets. Therefore, it is preferable to define quick assets directly within the company (by category or account) and calculate the numerator directly.
- Cash and cash equivalents
- Marketable securities
- Accounts receivable – assuming uncollectible receivables are written off; if not, they should be deducted. Likewise, overdue receivables with significant default risk should be considered carefully, as they cannot be treated as liquid assets.
Short-term Liabilities (Denominator of Quick Ratio) – Formula
Short-term liabilities represent obligations due within one year. While definitions may vary slightly between companies, they typically include:
- Accounts payable
- Short-term loans
- Employee-related liabilities
- Tax obligations
- Accrued expenses
- Received advances
- Accrued interest on long-term loans due within the current period
Quick Ratio – Recommended Values
A Quick Ratio below 1 indicates that the company may not be able to cover current short-term liabilities using its most liquid assets. As with the Cash Ratio, there are no universally fixed values; the optimal range depends on company size, industry, and other factors. Typically, a Quick Ratio should stay above 1, ideally between 1 and 1.5. Extremely high values may indicate inefficient working capital management, with excess liquidity that could potentially be better utilized through investments. Conversely, a lower ratio poses greater immediate risk. 3
Reference
- Investopedia, Quick Ratio [online]. [cit. 2025-10-29]. Available at: https://www.investopedia.com/terms/q/quickratio.asp
- Netsuite, Quick Ratio [online]. [cit. 2023-01-13]. Available at: https://www.netsuite.com/portal/resource/articles/financial-management/quick-ratio.shtml
- Patriot Software, What Is Quick Ratio? Learn How to Swiftly Calculate This Metric [online]. [cit. 2025-10-29]. Available at: https://www.patriotsoftware.com/blog/accounting/how-find-quick-ratio-formula-example/