Quick Ratio (Acid-Test) Calculator

What is the quick ratio?

The quick ratio (also called the acid‑test ratio) measures how easily a company can cover its short‑term liabilities using its most liquid assets – cash, marketable securities, and receivables.

Unlike the current ratio, the quick ratio excludes inventory and most prepaid expenses, making it a more conservative test of short‑term liquidity.

Quick ratio formula

Equivalently:

How to calculate the quick ratio step by step

1. Gather liquid assets from your balance sheet:
   • Cash and cash equivalents
   • Marketable securities (short‑term investments)
   • Accounts receivable (net of doubtful accounts)
2. Sum them to get quick assets:
   Quick Assets = Cash & Equivalents + Marketable Securities + Accounts Receivable
3. Find total current liabilities:
   • Accounts payable
   • Short‑term borrowings and overdrafts
   • Current portion of long‑term debt
   • Accrued expenses and taxes payable
4. Divide quick assets by current liabilities:
   Quick Ratio = Quick Assets ÷ Current Liabilities

How to interpret your quick ratio

The “right” quick ratio depends heavily on your industry, business model, and access to credit. But some broad guidelines are:

• Quick ratio < 1.0 – Potential liquidity risk.
  • Liquid assets are less than short‑term obligations.
  • The company may need to rely on inventory sales, new borrowing, or equity to meet near‑term bills.
• Quick ratio ≈ 1.0–2.0 – Often considered healthy.
  • Liquid assets are roughly equal to or comfortably above current liabilities.
  • Suggests the company can meet short‑term obligations without stress.
• Quick ratio > 2.0 – Very strong liquidity, but check efficiency.
  • Plenty of cash and near‑cash assets.
  • May indicate under‑utilized capital (idle cash that could be invested, used to pay down debt, or returned to owners).

Always compare your quick ratio to industry peers and track it over time. A falling quick ratio can be an early warning sign even if the absolute level still looks acceptable.

Quick ratio vs. current ratio vs. cash ratio

Example: Quick ratio calculation

Suppose a company has the following balance sheet items (in USD):

• Cash & cash equivalents: $30,000
• Marketable securities: $20,000
• Accounts receivable: $50,000
• Inventory: $70,000
• Current liabilities: $80,000

Quick assets (excluding inventory):

Quick ratio:

A quick ratio of 1.25 suggests the company has 1.25 dollars of highly liquid assets for every 1 dollar of short‑term obligations – generally a comfortable liquidity position, assuming this is consistent over time and in line with peers.

Limitations of the quick ratio

• Snapshot only: It uses one balance sheet date and ignores seasonality or intra‑month cash swings.
• Quality of receivables: It assumes receivables are collectible; if customers pay slowly or default, the ratio overstates liquidity.
• Ignores credit lines: A company with strong bank lines may operate safely with a lower quick ratio.
• Industry differences: Retailers, SaaS companies, manufacturers, and banks have very different “normal” ranges.

Use the quick ratio together with other metrics like the current ratio, cash ratio, operating cash flow, and debt service coverage to get a complete picture.

Who uses the quick ratio?

• Founders & CFOs – to monitor short‑term liquidity and working capital health.
• Lenders – as part of covenant tests and credit underwriting.
• Investors & analysts – to compare liquidity across companies and over time.
• Small business owners – to check if they can comfortably cover bills, payroll, and loan payments.

Quick ratio FAQ

What is a good quick ratio?

In many traditional industries, a quick ratio between 1.0 and 2.0 is often viewed as healthy: the company can cover its short‑term liabilities with liquid assets. But:

• Capital‑light, subscription‑based businesses (e.g., SaaS) may operate safely with lower ratios.
• Highly cyclical or asset‑heavy businesses may prefer higher buffers.

Why exclude inventory from the quick ratio?

Inventory may be hard to convert to cash quickly at book value, especially in a downturn or fire sale. The quick ratio focuses on assets that can be turned into cash rapidly and with minimal loss. Our calculator lets you optionally include inventory to see how much it changes the picture.

Can the quick ratio be too high?

Yes. A very high quick ratio can mean you are hoarding cash or short‑term investments instead of:

• Investing in growth (R&D, marketing, capex)
• Paying down expensive debt
• Returning capital to shareholders

Liquidity is good, but excess idle cash can drag on returns.

How often should I track the quick ratio?

At minimum, review it quarterly with your financial statements. For cash‑sensitive or fast‑growing businesses, monthly or even weekly dashboards can be useful. The trend over time is often more informative than a single data point.

Does the quick ratio work for banks and financial institutions?

Not really. Banks and insurers have very different balance sheet structures and regulatory liquidity metrics (e.g., LCR, NSFR). For them, specialized regulatory ratios are more appropriate than the standard quick ratio.