Financial Glossary: Quick ratio


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Quick ratio

Quick ratio

Cash plus other assets that can be used immediately (converted to Cash) should approach or exceed current liabilities.

It is an indicator of a company's Short-term Liquidity. The quick ratio measures a company's ability to meet its Short-term obligations with its most liquid assets. The higher the quick ratio, the better the Position of the company. Also called as the "acid-test ratio" or the "quick assets ratio".

The quick ratio is more conservative than the current ratio, a more well-known Liquidity measure, because it excludes inventory from current assets. Inventory is excluded because some companies have problems turning their inventory into Cash. In the event that Short-term liabilities need to be paid off immediately, there are situations in which the current ratio would overestimate a company's Short-term financial strength.

Posted by Financial Research Associates, LLC

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