Definition
The quick ratio is a more conservative liquidity measure than the current ratio, excluding inventory which may be difficult to liquidate quickly. It focuses on the most liquid assets: cash, marketable securities, and receivables. This ratio is particularly important for companies with slow-moving inventory.
functions Formula
Quick Ratio = (Current Assets − Inventory) / Current Liabilities
lightbulb Example
Current assets are $15M including $5M inventory, current liabilities are $10M. Quick ratio = ($15M - $5M) / $10M = 1.0x, meaning the company can just cover obligations without selling inventory.
verified_user Key Points
- More conservative than current ratio
- Above 1.0 indicates strong short-term liquidity
- Critical for industries with perishable or slow-moving inventory
- Cash ratio (cash only) is even stricter