Quick Ratio (Acid-Test) Calculator
This calculator helps finance professionals and analysts quickly determine the Quick Ratio, a key indicator of a company's short-term liquidity position, by using readily available data. It's essential for assessing financial health without the risk of inventory overvaluation.
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Data Source and Methodology
All calculations are rigorously based on data from the CFA Institute's Corporate Finance textbook. This source ensures that our calculator adheres to industry standards. View Source. All calculations rely strictly on this data.
The Formula Explained
\( \frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}} \)
Glossary of Terms
- Current Assets: All assets that are expected to be converted into cash within a year.
- Inventory: The raw materials, work-in-process products, and finished goods considered part of a business's assets.
- Current Liabilities: A company's debts or obligations that are due within one year.
- Quick Ratio: A measure of a company's ability to meet its short-term obligations with its most liquid assets.
Frequently Asked Questions (FAQ)
What is the Quick Ratio?
The Quick Ratio measures a company's ability to meet its short-term obligations using its most liquid assets, excluding inventory.
Why exclude inventory in the Quick Ratio?
Inventory is excluded because it may not be as easily convertible to cash as other current assets, making it a less reliable measure of liquidity.
How is Quick Ratio different from Current Ratio?
The Current Ratio includes inventory in current assets, while the Quick Ratio excludes it, providing a more stringent test of liquidity.