The quick ratio, also called the acid-test ratio, is a company's most liquid assets divided by its current liabilities. The most liquid assets are cash, short-term investments and money owed by customers (receivables): the things that are cash already or should turn into cash within weeks. Current liabilities are the bills and debts due within a year. The formula is (cash + short-term investments + receivables) ÷ current liabilities. It is a stricter cousin of the current ratio, because it leaves out inventory, which has to be sold before it becomes cash. Some websites use a shortcut, (current assets minus inventory) ÷ current liabilities, which can give a slightly different number, so check which version a source uses.
Worked example
Company A has $100,000 in cash, $50,000 in short-term investments, $150,000 owed by customers and $200,000 of inventory, so current assets are $500,000. It owes suppliers and lenders $400,000 within the year. Quick ratio = ($100,000 + $50,000 + $150,000) ÷ $400,000 = $300,000 ÷ $400,000 = 0.75. The current ratio, which counts the inventory, is $500,000 ÷ $400,000 = 1.25. The gap between the two numbers is the inventory: on paper the bills are covered, but only if the stock is sold. A quick ratio below 1 is not a verdict but a question to look into, such as how fast that inventory usually sells.
Why it matters
The quick ratio answers a tougher question than the current ratio: could the company pay its bills within the year even if it sold none of its inventory? Inventory is left out because it can sell slowly, at a discount, or not at all, and because it only turns into cash after a sale. The figures come from the balance sheet in the annual report. The catch is that there is no single right level. A supermarket or a restaurant collects cash daily and often sits below 1 by design, while a company that sells on credit to a few large customers depends heavily on those receivables being paid. Receivables can also be slow or unpaid. Treat a low or high reading as a question to look into, and compare it with companies in the same industry and with the company's own past years.
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Frequently asked questions
There is no single good level, because it depends on the industry. A figure of 1 or more means the most liquid assets at least match the bills due within a year, but a business that collects cash daily can run below 1 by design. Compare it with similar companies and with the same company's earlier years.
The current ratio counts all current assets, including inventory. The quick ratio leaves inventory out and counts only cash, short-term investments and money owed by customers, so it is the stricter test of whether bills can be paid without selling any stock.
Inventory has to be sold before it becomes cash, and it may sell slowly or at a discount. The acid test asks whether the company can pay without relying on that sale.
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Built & maintained by Worthmap · Last updated November 1, 2026
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