Quick Ratio (Acid-Test)
Quick Ratio (Acid-Test)
Current assets less inventory and other non-quick assets, divided by current liabilities. Other non-quick assets include prepayments and current assets that cannot readily settle near-term obligations.
When to use: Use when inventory is large or slow-moving — heavy retailers, manufacturers, real-estate developers. >1 means the firm can cover current liabilities without selling inventory; <1 signals dependence on inventory liquidation in a crunch.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| PrepaidExpenses | Prepaids & Other Non-Quick Assets | Other current assets unavailable to settle near-term obligations; omit only if zero | $ |
| QR | Quick Ratio | (Current assets − inventory) / current liabilities | integer |
| CurrentAssets | Current Assets | Cash + receivables + inventory + other current assets | $ |
| Inventory | Inventory | Inventory on the balance sheet | $ |
| CurrentLiabilities | Current Liabilities | Accounts payable, short-term debt, and other liabilities due within one year | $ |
Real-Life Examples
Example 1: Inventory-Heavy Retailer
Current assets $500M (with $300M of that in inventory). Current liabilities $250M.
Given
Step-by-Step
For these inputs, Quick Ratio is 0.800000 under the stated payment, compounding and accounting assumptions.
Frequently Asked Questions
Only when they are zero or immaterial for your stated approximation. Subtracting inventory alone can overstate liquidity.
Use amounts from the same reporting date and consistent currency units. Cash and near-term collectible receivables are quick assets; inventory and prepaids generally are not.