Quick Ratio Calculator
Acid Test Ratio - Liquidity Analysis
Calculate the quick ratio (acid test ratio) to measure a company's ability to meet short-term obligations with its most liquid assets.
Financial Data
Cash on hand and in bank accounts
Short-term investments easily convertible to cash
Money owed by customers
Short-term debts due within one year
Quick Ratio Formula
Quick Ratio = (Cash + Securities + Receivables) / Current Liabilities
Also known as the Acid Test Ratio, it measures immediate liquidity without relying on inventory sales.
Interpretation Guide
≥ 2.0: Excellent liquidity
1.5 - 2.0: Good liquidity
1.0 - 1.5: Acceptable liquidity
0.5 - 1.0: Poor liquidity
< 0.5: Critical - immediate action needed
A ratio of 1.0 or higher indicates the company can pay off current liabilities without selling inventory.
Understanding Quick Ratio
The quick ratio (acid test ratio) measures a company's ability to meet short-term obligations using only its most liquid assets.
Key Points:
- More conservative than current ratio (excludes inventory)
- Focuses on assets quickly convertible to cash
- Ideal ratio is typically 1.0 or higher
- Industry standards may vary
- Higher ratio indicates better liquidity position
Quick Ratio vs Current Ratio
Quick Ratio:
Excludes inventory and prepaid expenses. More stringent test of liquidity.
Current Ratio:
Includes all current assets. Broader measure of liquidity.
When to Use Quick Ratio:
- Assessing immediate liquidity needs
- Companies with slow-moving inventory
- Conservative financial analysis
- Credit risk assessment
Improving Quick Ratio
Increase Quick Assets:
- Improve cash collection from customers
- Reduce accounts receivable days
- Sell non-essential assets
- Increase short-term investments
Reduce Liabilities:
- Pay off short-term debts
- Negotiate longer payment terms
- Refinance to long-term debt
- Reduce operational expenses
Operational Changes:
- Improve working capital management
- Optimize inventory levels
- Enhance credit policies
- Increase profit margins
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