Quick Ratio Calculator

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Reviewed by: **David Chen, CPA, CMA**
Certified Public Accountant (CPA) specializing in immediate solvency analysis, working capital efficiency, and short-term debt coverage.

The **Quick Ratio Calculator** (or Acid-Test Ratio) measures a company’s ability to meet its short-term obligations using only its most liquid assets (Quick Assets), excluding inventory and prepaid expenses. Enter values for any three of the four core parameters (Quick Assets, Current Liabilities, Quick Ratio, or Inventory) to solve for the missing one.

Instructions: Enter values for any three of the four core parameters to solve for the missing one.

Liquidity Parameters

Quick Assets ($QA$) – [P]

Current Liabilities ($CL$) – [F]

Quick Ratio ($QR$) – [V]

Inventory ($INV$) – [Q] Used for checking Current Ratio consistency ($CA = QA + INV$).

Quick Ratio Formula

The Quick Ratio ($QR$) is calculated by dividing Quick Assets ($QA$) by Current Liabilities ($CL$).

Quick Ratio ($QR$):

$$QR = \frac{QA}{CL}$$

Quick Assets ($QA$):

$$QA = CA – Inventory$$ Formula Source: Investopedia

Variables Explained (P, F, V, Q – Parameters)

$QA$ (Quick Assets, $P$): The most liquid current assets (Cash, Receivables, Marketable Securities).
$CL$ (Current Liabilities, $F$): Short-term debts and obligations due within one year.
$QR$ (Quick Ratio, $V$): A strict measure of immediate liquidity (Acid-Test).
$INV$ (Inventory, $Q$): Goods held for sale; excluded from Quick Assets.

Related Liquidity Calculators

Analyze immediate and overall solvency of a business:

What is Quick Ratio?

The **Quick Ratio**, often called the Acid-Test Ratio, is a stringent liquidity metric that evaluates a company’s ability to pay its short-term liabilities using only the most liquid assets. Unlike the Current Ratio, it excludes assets that may take longer to convert to cash, specifically **inventory** and prepaid expenses. This provides a more conservative and immediate view of a company’s financial health.

Lenders and creditors view the Quick Ratio as a strong indicator of financial stability. A ratio of 1.0 or higher is generally preferred, as it suggests the company has enough highly liquid assets to cover its immediate debts without relying on selling its inventory, which can sometimes be difficult or require fire-sale discounts.

How to Calculate Quick Ratio (Example)

A business has Quick Assets ($QA$) of \$150,000 and Current Liabilities ($CL$) of \$100,000. We solve for the Quick Ratio ($QR$):

Step 1: Identify Quick Assets and Current Liabilities
$QA = \$150,000$ and $CL = \$100,000$.
Step 2: Apply the Formula
$QR = QA / CL = \$150,000 / \$100,000 = \mathbf{1.5}$.
Step 3: Interpretation
The Quick Ratio is $\mathbf{1.5}$, meaning the company has \$1.50 in highly liquid assets for every \$1.00 in short-term debt, indicating excellent immediate liquidity.

Frequently Asked Questions (FAQ)

What is an ideal Quick Ratio?

A Quick Ratio of 1.0 is generally considered the baseline; it means quick assets perfectly cover current liabilities. Anything below 1.0 may be concerning, while 1.5 or higher suggests very strong immediate liquidity.

Why is Inventory excluded from the Quick Ratio?

Inventory is excluded because it is often the least liquid current asset. A company might struggle to sell its inventory quickly or might have to discount it significantly in a distress sale, making it an unreliable source for immediately paying off liabilities.

If the Quick Ratio is low, what are the implications?

A low Quick Ratio (below 1.0) implies that the company relies heavily on selling inventory to meet its short-term obligations. This creates risk, as inventory sales are not guaranteed, potentially leading to immediate solvency problems.

How can this calculator relate to Current Assets ($CA$)?

Since Quick Assets ($QA$) = Current Assets ($CA$) – Inventory ($INV$), this calculator can be used to solve for the implied Current Assets ($CA = QA + INV$) if Inventory is provided, allowing for consistency checks with the Current Ratio.

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