Quick Ratio Calculator
Calculate the quick ratio, also called the acid-test ratio, to gauge whether a company can cover its short-term debts using only its most liquid assets. This ratio strips out inventory since it cannot always be sold quickly at full value.
The quick ratio formula is (current assets - inventory) / current liabilities. With $500,000 in current assets, $150,000 in inventory, and $300,000 in current liabilities, the quick ratio is ($500,000 - $150,000) / $300,000 = 1.17. That means the company has $1.17 in liquid assets for every $1 of short-term debt.
A quick ratio of 1.0 or higher is generally considered healthy. It means the company can meet all short-term obligations without needing to sell inventory or secure additional financing. A ratio below 1.0 is a warning sign that the company may struggle to pay its bills if conditions tighten.
The quick ratio is more conservative than the current ratio because it excludes inventory, which can be slow to convert to cash, especially for manufacturers or retailers with seasonal stock. Lenders and analysts prefer the quick ratio for industries where inventory can become obsolete or hard to liquidate, like technology hardware or fashion retail.