What Is Quick Ratio?

The quick ratio (also called the acid-test ratio) is a more conservative liquidity metric than the current ratio. It measures your ability to pay short-term debts using only your most liquid assets: cash, accounts receivable, and marketable securities—excluding inventory and prepaid expenses, which take longer to convert to cash.

The quick ratio answers the question: "Can I pay my bills *right now* without selling inventory?" This makes it a stricter test of financial health, especially valuable for industries where inventory moves slowly (e.g., manufacturing) or during economic downturns when inventory becomes hard to sell.

A quick ratio above 1.0 is generally considered healthy, meaning liquid assets cover current liabilities. A ratio below 1.0 suggests potential liquidity stress if unexpected cash demands arise. Most healthy businesses aim for a quick ratio between 1.0 and 1.5.

Formula

Quick Ratio = (Current Assets − Inventory − Prepaid Expenses) ÷ Current Liabilities

Example

The retail business has current assets of €150,000 (cash €50,000, receivables €40,000, inventory €60,000) and current liabilities of €100,000. Quick assets = €150,000 − €60,000 = €90,000. Quick ratio = €90,000 ÷ €100,000 = 0.9. The ratio below 1.0 suggests reliance on inventory sales to meet obligations.

Finmap Integration

Finmap tracks both current and quick ratios, helping you understand not just whether you can pay bills, but whether you can do so without depending on inventory sales.