quick ratio

The quick ratio (or acid test ratio) is a more stringent test than the current ratio for short-term solvency, which is a company's current ability to pay its existing debts when they come due. This ratio only takes into account cash, marketable securities (cash equivalents) and accounts receivable because they are considered the most liquid forms of current assets. A quick ratio less than 1.0 indicates "reliance" on inventory and other current assets to liquidate short-term debt.

The quick ratio (acid-test) measures short-term liquidity using only quick assets (excluding inventory); it indicates ability to pay current liabilities quickly.

- Used to interpret financial statements and evaluate performance, liquidity, solvency, and efficiency.
- Used when comparing periods, peers, and forecasting outcomes.

- Example: Analysts apply **quick ratio** to assess trends and compare the company with industry benchmarks.

- Why it matters: Turns raw numbers into insights, supports decision-making, and highlights risks and opportunities early.