Dr. Jenkins specializes in corporate liquidity, credit analysis, and short-term debt solvency metrics.
The **Quick Ratio Calculator** (also known as the Acid-Test Ratio) is a stringent liquidity measure showing a company’s ability to cover its short-term liabilities using its most liquid assets. This four-variable calculator solves for any missing input: **Current Assets (CA)**, **Inventory (INV)**, **Current Liabilities (CL)**, or the **Quick Ratio (QR)**. **Input any three of the four core variables** to find the missing one.
Quick Ratio Calculator
Quick Ratio Formulas
The Quick Ratio compares quick assets (CA minus INV) to current liabilities. It measures short-term solvency:
Formula Source: Investopedia: Quick Ratio
Variables Explained
The Quick Ratio relies on three core inputs from a company’s balance sheet:
- Current Assets (CA): Assets expected to be converted to cash within one year (e.g., cash, receivables).
- Inventory (INV): Goods held for sale. Excluded from the quick ratio due to their low liquidity.
- Current Liabilities (CL): Debts or obligations due within one year (e.g., accounts payable, short-term loans).
- Quick Ratio (QR): The resulting ratio, typically expressed as a ratio (e.g., 1.5).
Related Calculators
Assess overall corporate liquidity and financial health using these related metrics:
- Current Ratio Calculator
- Debt-to-Asset Ratio Calculator
- Operating Profit Margin Calculator
- Receivables Turnover Ratio Calculator
What is the Quick Ratio?
The **Quick Ratio**, often called the Acid-Test Ratio, is a key financial metric used by analysts and creditors to gauge a company’s ability to meet its immediate short-term financial obligations with its most liquid (or “quick”) assets. Unlike the Current Ratio, the Quick Ratio excludes inventory, as inventory may take time to sell and convert into cash, especially during a financial crisis.
A quick ratio of **1.0 or greater** is generally considered healthy, meaning the company has enough highly liquid assets to cover all of its current liabilities. If the ratio is significantly less than 1.0, it suggests the company might face liquidity issues in the event of a sudden need for cash, or if it is unable to sell its inventory quickly.
How to Calculate Quick Ratio (Example)
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Gather Liquid Asset Data:
A company has **Current Assets (CA)** of $\mathbf{\$250,000}$ and **Inventory (INV)** of $\mathbf{\$50,000}$. Calculate quick assets: $\$250,000 – \$50,000 = \mathbf{\$200,000}$.
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Identify Current Liabilities:
The company has **Current Liabilities (CL)** of $\mathbf{\$150,000}$.
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Apply the Quick Ratio Formula:
Divide quick assets by current liabilities: $$ QR = \frac{\$200,000}{\$150,000} $$
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Determine the Ratio:
The result is $\mathbf{1.33}$. This means the company has \$1.33 of quick assets for every \$1.00 of current liability, indicating strong short-term liquidity.
Frequently Asked Questions (FAQ)
A: Inventory is excluded because it is generally the least liquid of a company’s current assets. In a rapid downturn or distress scenario, converting inventory to cash quickly might require deep discounts, undermining its full book value.
A: A ratio of 1.0 is the benchmark. Ratios above 1.0 are typically favorable, indicating adequate liquidity. However, an excessively high ratio might suggest inefficient use of cash.
A: It depends on the industry. The Quick Ratio is a more conservative and stringent test, preferred for industries with large, volatile, or slow-moving inventory (like retail or manufacturing). The Current Ratio is a broader indicator.
A: Yes. Accounts Receivable (money owed to the company by customers) is considered a highly liquid asset and is included in the “Quick Assets” component ($CA – INV$).