Dr. Varga holds a doctorate in Accounting and is a Certified Public Accountant (CPA) with extensive experience in corporate solvency analysis and short-term debt management.
The **Quick Ratio Calculator** (also known as the Acid-Test Ratio) provides a strict assessment of a company’s ability to cover its short-term liabilities using only its most liquid (quick) assets, excluding inventory and prepaid expenses. **Input any three of the four core variables** (Quick Assets A, Current Liabilities L, Quick Ratio R, or Net Quick Assets N) to instantly solve for the missing one.
Quick Ratio Calculator
Quick Ratio Core Formulas
The Quick Ratio (R) is the foundation of the Acid-Test. Net Quick Assets (N) is the difference between Quick Assets (A) and Current Liabilities (L). This calculator uses the following relationships to solve for any missing variable:
Formula Source: Investopedia: Quick Ratio
Variables Explained
These four variables are critical for deep liquidity analysis, focusing on a company’s immediate cash position:
- Quick Assets (A): Current Assets minus Inventory and Prepaid Expenses. These are the most liquid assets.
- Current Liabilities (L): Debts or obligations due within one year.
- Quick Ratio (R): The ratio of Quick Assets to Current Liabilities, measuring immediate liquidity.
- Net Quick Assets (N): The result of $A – L$. If positive, the company can cover its short-term debts immediately.
Related Calculators
Enhance your solvency and liquidity analysis with these related tools:
- Current Ratio Calculator
- Cash Ratio Calculator
- Working Capital Calculator
- Days Sales Outstanding Calculator
What is the Quick Ratio?
The **Quick Ratio**, or Acid-Test Ratio, is a stringent liquidity measure that shows a company’s capacity to pay its current liabilities without needing to sell its inventory or liquidate prepaid expenses. It is considered a more conservative and reliable indicator of short-term financial strength than the Current Ratio, especially for businesses where inventory turnover is slow or questionable.
A ratio of **1.0** (or 1:1) is often considered the benchmark, indicating that a company has exactly enough highly liquid assets to cover all its immediate short-term debts. A ratio significantly above 1.0 is generally good, while a ratio below 1.0 may signal difficulty in meeting immediate debt obligations. However, industry context is key: a fast-food chain has highly liquid inventory (cash) and might comfortably operate below 1.0, while a manufacturer needs a higher ratio.
How to Calculate Quick Ratio (Example)
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Gather Variables:
A company has **Quick Assets (A)** of **\$800,000** and **Current Liabilities (L)** of **\$600,000**.
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Apply the Ratio Formula:
Divide Quick Assets by Current Liabilities: $$ R = \frac{A}{L} = \frac{\$800,000}{\$600,000} $$
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Determine the Quick Ratio:
The resulting Quick Ratio is approximately **1.33**. This means the company has \$1.33 in quick assets for every \$1.00 in short-term debt, suggesting strong immediate solvency.
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Determine Net Quick Assets:
Net Quick Assets ($N$) is $A – L = \$800,000 – \$600,000 = \mathbf{\$200,000}$.
Frequently Asked Questions (FAQ)
A: Inventory is excluded because it is often the least liquid component of current assets. In a rapid debt collection scenario (the “acid test”), there may not be time to sell inventory, or its value may be volatile.
A: Not always. Many businesses (especially those with highly predictable cash flows, like subscription services) can safely operate below 1.0. However, for most companies, it indicates immediate liquidity risk and potential difficulty in paying bills promptly.
A: The Quick Ratio (R) is a relative measure (Assets per dollar of Liabilities), while Net Quick Assets (N) is an absolute dollar measure (the cushion of liquid funds remaining after paying off liabilities).
A: A company can improve it by increasing liquid assets (e.g., converting accounts receivable to cash) or by decreasing current liabilities (e.g., using long-term financing to pay off short-term debt).