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Quick Ratio =
( Current assets - Inventory )
AKA: Acid Test Ratio
Quick Ratio measures the ability of a company to pay its current liabilities when they come due with only quick assets (which can convert to cash within 90 days or in the short term).
The aka acid test ratio measures the immediate amount of cash available to satisfy the short-term debt.
Note: expanded calculation
Add cash, cash equivalents, short-term investments, and current receivables together (do not include inventory), then divide them by current liabilities.
Accounts Receivable: $5,000
Stock Investments: $1,000
Prepaid taxes: $500
Current Liabilities: $15,000
Quick Ratio = 10000+5000+1000 / 15000 = 1.07
A 1.07 ratio means that M&M can pay off all its current liabilities with quick assets and still have some quick assets left over.
BENCHMARK: PG, ROT
A higher quick ratio is more favorable for companies because it shows that they have more quick assets than current liabilities.
A company with a quick ratio of 1 indicates that quick assets equal current assets. A ratio of 2 shows that the company has twice as many quick assets as current liabilities.
Generally, 0.50 to 1.0 are considered acceptable Quick Ratios.
ROT: Rule of thumb
HA: Historical Average (organization’s historical average)
PG: Peer Group average
EB: Economic Benchmark
DISCLAIMER: The interactive calculators on this site are self-help tools intended to help you visualize and explore your financial information. They are not intended to replace the advice of a qualified professional. Because each business is different, we can not guarantee accuracy.