Introduction to the Quick Ratio KPI
The Quick Ratio KPI—also known as the Acid-Test Ratio—measures a company’s ability to meet its short-term liabilities using only its most liquid assets. It’s a core financial health metric that shows how well a business can handle immediate obligations without relying on inventory.
What Is the Quick Ratio?
The Quick Ratio focuses on assets that can be converted into cash quickly. The formula is:
Quick Ratio = (Current Assets – Inventory) ÷ Current Liabilities
—or—
(Cash + Marketable Securities + Accounts Receivable) ÷ Current Liabilities
Because it excludes inventory, this ratio gives a more conservative and accurate picture of liquidity than the Current Ratio.
Why This KPI Matters
The Quick Ratio is essential for understanding short-term financial stability. It helps businesses and investors evaluate:
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Ability to cover immediate obligations
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Dependence on inventory for liquidity
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Vulnerability to cash-flow interruptions
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Overall financial resilience
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Risk levels during economic or market disruptions
A ratio above 1 indicates strong liquidity, while a ratio below 1 may signal potential challenges in meeting near-term debts.
How to Use This KPI Effectively
Companies track the Quick Ratio quarterly or monthly and compare it with industry benchmarks. Pairing it with KPIs like Current Ratio, Cash Flow, Debt-to-Equity Ratio, and Working Capital provides a full picture of financial health and operational stability.