In finance, the acid-test or quick ratio or liquidity ratio measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately. Quick assets include those current assets that presumably can be quickly converted to cash at close to their book values. It is the ratio between quick or liquid assets and current liabilities.
What is the ‘Quick Ratio’
The quick ratio is 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. For this reason, the ratio excludes inventories from current assets, and is calculated as follows:
Explaining ‘Quick Ratio’
For example, consider a firm with the following current assets on its balance sheet:
Quick Ratio FAQ
What is a good quick ratio?
How is the quick ratio calculated?
What does a quick ratio of 1 mean?
What is current ratio vs quick ratio?
Can a current ratio be lower than quick ratio?
Is high quick ratio good or bad?
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