Quick Ratio
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Definition of 'Quick Ratio'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.The quick ratio is calculated as: Quick Ratio = (Current Assets - Inventories) / Current Liabilities Also known as the "acid-test ratio" or the "quick assets ratio". |
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Investopedia explains 'Quick 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 difficulty turning their inventory into cash. In the event that short-term obligations need to be paid off immediately, there are situations in which the current ratio would overestimate a company's short-term financial strength. |
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