Learn how to calculate quick ratio and assess your business's ability to pay bills without selling inventory.
The quick ratio (also called acid-test ratio) measures your ability to pay short-term obligations using only your most liquid assets—excluding inventory. Formula: Quick Ratio = (Current Assets - Inventory) ÷ Current Liabilities. A ratio of 1.0+ is considered healthy, meaning you can cover liabilities without selling inventory. It's more conservative than current ratio and better for businesses with slow-moving inventory.
Quick Ratio = (Current Assets - Inventory) ÷ Current Liabilities
Also expressed as:
Quick Ratio = (Cash + Marketable Securities + Accounts Receivable) ÷ Current Liabilities
Compare to current ratio formula and learn about working capital.
Inventory is excluded because:
Business: Manufacturing company
Current Assets:
Current Liabilities: $50,000
Quick Assets: $100,000 - $45,000 = $55,000
Quick Ratio = $55,000 ÷ $50,000 = 1.1
✓ Healthy quick ratio - Can cover liabilities without selling inventory
You can cover short-term obligations without selling inventory. Lenders view this favorably.
Some ability to cover obligations, but may need to sell inventory or collect receivables quickly. Monitor closely.
Insufficient liquid assets. High risk of cash flow problems. May need financing to improve liquidity.
Both measure liquidity, but quick ratio is more conservative:
| Aspect | Current Ratio | Quick Ratio |
|---|---|---|
| Includes Inventory | Yes | No |
| Conservatism | Less conservative | More conservative |
| Best For | Businesses with liquid inventory | Businesses with slow-moving inventory |
| Typical Range | 1.5-2.0 | 1.0-1.5 |
Build cash reserves through improved cash flow management or financing. More cash improves quick ratio directly.
Invoice faster, offer early payment discounts, or use invoice financing to convert receivables to cash immediately.
Pay down short-term debt or negotiate longer payment terms with vendors to reduce current liabilities.
A business line of credit can boost cash and improve quick ratio.
A quick ratio of 1.0 or higher is considered good—it means you can cover short-term obligations without selling inventory. Ratios below 0.5 are risky and may indicate cash flow problems.
Quick ratio excludes inventory, so it's always equal to or lower than current ratio. The difference shows how much of your liquidity depends on inventory, which may not be easily converted to cash.
Both matter. Current ratio shows overall liquidity. Quick ratio shows immediate liquidity without inventory. Lenders often check both. For businesses with slow-moving inventory, quick ratio is more important.
Lenders check quick ratio to assess immediate liquidity. Ratios below 0.5 are red flags. Ratios of 1.0+ improve approval chances. Learn about how to qualify for business loans.
Our team can help you understand your financial ratios and find financing to improve liquidity.
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