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Quick Ratio The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets. For this reason, the ratio excludes inventories from current assets, and is calculated as follows:  Quick ratio = (current assets – inventories) / current liabilities, or = (cash and equivalents + marketable securities + accounts receivable) / current liabilities The quick ratio measures the dollar amount of liquid assets available for each dollar of current liabilities. Thus, a quick ratio of 1.5 means that a company has $1.50 of liquid assets available to cover each $1 of current liabilities. The higher the quick ratio, the better the company's liquidity position. Also known as the “acid-test ratio" or "quick assets ratio."

Breaking it Down: For example, consider a firm with the following current assets on its balance sheet: Cash $5 million, marketable securities $10 million, accounts receivable... Read More